Understanding Bitcoin, Cryptocurrency and Blockchain
Over the last few years, cryptocurrency stories have made the news frequently. In 2020 the tales of cryptocurrency and bitcoin had heightened on social media, news channels, and business platforms.
The new money technology has left people with a fascinating perspective of the crypto world. However, others have not yet figured out how these platforms work. Many of the questions I have received over the last few months is in regard to Bitcoin, Cryptocurrency, and Blockchains.
People are still wondering how exactly does cryptocurrency work? What is Bitcoin, and how do blockchains work? Therefore, to solve the confusion, let’s explore Blockchain, Cryptocurrency, and Bitcoin.
What Is a Blockchain?
A blockchain is a database, which is a collection of electronically stored data or information. A blockchain has a number of distinguishing characteristics that set it apart from traditional databases. A blockchain is a collection of interconnected data ‘blocks ‘ which forms a shared digital ledger that records the chain’s activity and information.
Each blockchain ledger is stored on thousands of separate servers all around the world. This means that everybody on the network can see and confirm the entries of everyone else.
How Does Blockchain Work?
To ensure this is well understood, we have ensured that the concept of blockchain is highly simplified. A blockchain is made up of different elements that, when combined, work efficiently to meet users’ needs.
These elements include a certain amount of data, a cryptographic hash, and the hash of the block before it. A hash is a unique fingerprint for each block that is used as an identity for the block and its contents.
Therefore, if the data in a blockchain is changed, the cryptographic hash changes as well. Due to the uniqueness of the identifiers of different blocks, blockchains are highly secure and trustworthy. In a given scenario, when one wants to change the data on blockchains, they would take a lot of time processing and calculating the proof of work of the subsequent blocks. This makes it hard for hackers and other malicious users to change the data on different blockchains.
There is an additional layer on the blockchain known as a peer-to-peer network. The peer-to-peer aspects ensure that blockchain ledgers are not owned by one entity. The ledger is distributed among different users in the network.
If you join the network as a new user, you will be granted a full copy of the blockchain. When a new block is added to the chain, each user receives it as a node. The peer-to-peer network creates a consensus for data verification and validity.
Blockchain technology is used in plenty of other things other than creating cryptocurrencies such as bitcoin. Some of the real-world entities that have utilized blockchain technology include:
- Banking- banks are currently using blockchain technology to transfer and process payments.
- Tamper-proof data safety- Many companies have found a safer way to store records and share information securely across different platforms. For instance, medical organizations are using blockchains to store confidential medical records.
- Creating smart contracts- Currently, smart contracts are written in different lines of code on a blockchain.
- Streamlining supply chains- in blockchains, recording and recalling data has been made easier for different entities in the supply chain, such as logistics.
What Is Cryptocurrency?
A cryptocurrency is simply a form of electronic money. It is, however, decentralized, which means it is not backed or regulated by a central authority such as a bank, government, or country, unlike ordinary fiat currency.
Read: Who Invented Bitcoin?
Conventional distinctions exist between crypto-assets and other forms of money. To begin with, cryptocurrencies do not exist in a physical form – you cannot use them like coins or bills; they are completely digital. They’re also not reliant on another asset like gold, and they’re not kept in a bank or financial organization.
Cryptocurrencies, decentralized currencies based on blockchain technology. Although most people know bitcoin and Ethereum, there are more than 11,000 cryptocurrencies.
How Do Cryptocurrencies Work?
Cryptocurrencies use the same principles as blockchain. Blocks of transactional data are recorded in data blocks shared and verified across distributed networks.
To understand the full concept, check how a cryptocurrency transaction takes place:
In a certain cryptocurrency, a user possesses 300 bitcoins. These monies are kept in a digital wallet that contains both a public and private key. The public and private keys are linked, allowing them to transmit and receive money.
The user wishes to buy a product from a vendor for 50 bitcoin coins. The user agrees to send this amount from their wallet to the vendor’s wallet using their public key to verify their identity.
The user’s private key is used to digitally sign the transaction. After that, the transaction is recorded and broadcast to the rest of the cryptocurrency network. It is validated here to ensure that it is genuine and that the user has sufficient funds to complete the transaction.
Once the transaction goes through, it is added to the next block of the blockchain.
What Is Bitcoin?
Bitcoin is one of the most popular cryptocurrencies in existence today. The digital currency, which was founded in 2008, has grown tremendously and opened doors for other cryptos to be created.
Over the years, the worth of bitcoin has consistently grown. By 2017 its worth had grown to around $20,089. Even though prices declined in 2020, Bitcoin is still popular.
Read: What does the price of Bitcoin depend on?
Don’t Be Left Out! Blockchain Technology Is Exciting
Most people find cryptocurrency hard to understand and tap into. However, with the basic knowledge, it is easy to figure out cryptocurrency.
Clearly, from this read, blockchain technology is very versatile and can be used in very many entities such as banking, filing, and streamlining supply chains. Even though it’s still new and initiating most of its use, cryptocurrency has great ability to grow.
Due to the exploration by many people in this field, knowledge in blockchain, cryptocurrency, and applications of bitcoin will become more common. Therefore, it’s the best time to learn and know how these entities work. It will definitely benefit you in the future.
The best way to find out how cryptocurrency works is to open a free BEX Bank account and buy bitcoin or another cryptocurrency without commissions and fees.