For
newcomers to cryptocurrency, the terminology can be quite confusing
and even misleading. Some people refer to Bitcoin when talking about blockchain
technology, while others will mention blockchain when talking about
cryptocurrencies in general. However, these terms are not really interchangeable:
they refer to distinct but connected concepts. Thus, it is important to
understand the differences between them. Hereby we introduce you the basics of
blockchain technology, cryptocurrencies, and Bitcoin.
A Very Basic Analogy
Consider
this:
·
Websites
are a specific technology used to share information.
·
Search
engines are one of the most popular and well-known ways to use website
technology.
·
In
turn, Google is one of the most popular and well-known examples of a search
engine.
Similarly:
·
Blockchain
is a specific technology used to record information (data blocks).
·
Cryptocurrency
is one of the most popular and well-known ways to use blockchain.
·
In
turn, Bitcoin is the first and most popular example of a cryptocurrency.
Blockchain: Concept
Most
blockchains are designed as a distributed and decentralized digital ledger.
In simple terms, blockchain is a digital ledger that is basically an electronic
version of a paper ledger, and it is responsible for recording a list of
transactions.
More
specifically, a blockchain is a linear chain of multiple blocks that
are connected and secured by cryptographic proofs. Blockchain technology may
also be applied in other activities that do not necessarily require financial
operations, but in the cryptocurrencies context, they are responsible for
keeping a permanent record of all confirmed transactions.
'Distributed'
and 'decentralized' refers to the way the ledger is structured and maintained.
To understand the difference, think about common forms of centralized ledgers
such as public records of home sales, a bank's record of ATM withdrawals, or
eBay's list of sold items. In every case, only one organization controls the
ledger: a government agency, the bank, or eBay. Another common factor is that
there's only one master copy of the ledger and anything else is simply a backup
that is not the official record. Therefore, traditional ledgers are centralized
because they are maintained by a single entity and are usually reliant on a
single database.
In
contrast, a blockchain is usually built as a distributed system that functions
as a decentralized ledger. This means that there is no single copy of the
ledger (distributed) and no single authority in control (decentralized). Simply
put, every user that decides to join and participate in the process of
maintaining a blockchain network keeps an electronic copy of the blockchain
data, which is frequently updated with all the latest transactions, in
synchrony to the other user’s copies.
In
other words, a distributed system is maintained by the collective work of many
users, which are spread around the world. These users are also known as network
nodes, and all these nodes participate in the process of verifying and
validating transactions, according to the rules of the system. Consequently,
the power is decentralized (there is no central authority).
Blockchain: Practice
Blockchain
takes its name from the way records are organized: a chain of linked blocks.
Basically speaking, a block is a piece of data that contains, among other
things, a list of recent transactions (like a printed page of entries). The
blocks, as well as the transactions, are public and visible, but they cannot be
altered (like putting each page into a sealed glass box). As new blocks are
added to the blockchain, a continuous record of linked blocks is formed (like a
physical ledger and its many pages of records). This was a very simple analogy,
but the process is much more complex than that.
One of
the main reasons why blockchains are so resistant to modification is the fact
that the blocks are linked and secured by cryptographic proofs. In order to
produce new blocks, participants of the network need to engage in a costly and
intensive computational activity known as mining. Basically, miners are responsible for verifying
transactions and grouping them into newly created blocks that are then added to
the blockchain (if certain conditions are met). They are also responsible for
introducing new coins into the system, which are issued as a reward for their
job.
Every
new confirmed block is linked to the block that came immediately before it. The
beauty of this setup is that it is practically impossible to change the data in
a block once it's been added to the blockchain because they are secured by
cryptographic proofs, which are very costly to be produced and extremely
difficult to be undone.
Summing
up, a blockchain is a chain of linked data blocks that are organized in a
chronological order and are secured by cryptographic proofs.
Cryptocurrency
In
simple terms, a cryptocurrency is a digital form of money that is
used as a medium of exchange within a distributed network of users. Unlike
traditional banking systems, these transactions are tracked through a public
digital ledger (the blockchain) and may occur directly between the participants
(peer-to-peer) without the need for intermediaries.
'Crypto'
refers to the cryptographic techniques used to secure the economic system and
to ensure that the creation of new cryptocurrency units and the validation of
transactions go smoothly.
Although
not all cryptocurrencies are mineable, the many that, like Bitcoin, are reliant
on the process of mining, have a slow and controlled growth of their circulating
supply. Therefore, mining is the only way to create new units of these coins
and this avoids the risks of inflation that threat the traditional fiat currencies, where a government is able to control
the money supply.
Bitcoin
Bitcoin
is the first cryptocurrency ever created and is, naturally, the most famous
one. It was introduced in 2009 by pseudonymous developer Satoshi Nakamoto. The main idea was to create an
independent and decentralized electronic payment system based on mathematical
proofs and cryptography.
Despite
being the most well-known, Bitcoin is not alone. There are many other
cryptocurrencies, each with its own particular features and mechanisms.
Furthermore, not all cryptocurrencies have their own blockchain. Some were
created on top of an already existing blockchain, while others were created
completely from scratch.
As most
cryptocurrencies, Bitcoin has a limited supply, which means that no more
Bitcoins will be generated by the system after the max supply is reached. Although this varies from
project to project, the max supply of Bitcoin is set to 21 million units.
Usually, the total supply is public information that is defined when the
cryptocurrency is created. You can check the circulating supply and Bitcoin
Price on Binance Info.
The Bitcoin protocol is open source and anyone can review or copy the code. Many developers around the world contribute to the development of the project.
The Bitcoin protocol is open source and anyone can review or copy the code. Many developers around the world contribute to the development of the project.
Nice read! MintonBlock is a growing blockchain investment firm that provides opportunities and secure access to the digital currency asset class for accredited investors through its proven strategies and diversified portfolio. best blockchain investment firm
ReplyDelete