WTF* Are Bitcoin, Blockchain And Crypto?!
*WTF: 'what the flip'.
By now, you've probably heard people talking about this thing called Bitcoin ("is it some sort of new currency?"). If you haven't, you will. It's the largest, and one of many crypto currencies ("you've lost me already bro!") which tend to be connected to another thing called a blockchain ("WTF is that?!").
Though I'm by far no Bitcoin, crypto currency or blockchain expert, I'm writing this article to provide a very high level outline and introduction to, and for, anyone who's ever wondered what this Bitcoin/crypto stuff is all about, or anyone who's even a little curious.
Crypto Currency
What is it?
A crypto currency is basically a digital form of payment/medium of exchange that uses cryptography (think of cryptography as kind of like the opposite of encryption - when you encrypt something, you change it from readable/understandable data/information to something non-readable/understandable, right? Cryptography, at a high level, is the opposite, i.e. taking non-readable/understandable information or data and say, solving a problem, in order to make it readable/understandable) to confirm transactions by buyers and sellers and make sure new currency is rewarded.
Crypto currencies tend to be decentralised. What this means is that there is no bank (no Bank of England, no European Central Bank and no Federal Reserve System) or organisation in between buyers and sellers in order to print money, confirm transactions or issue new currency. It's just the buyer and the seller. Oh, and the blockchain (see below)! The total amount of crypto currency that will be produced is decided at the beginning of the crypto currencies' creation (21 million and January 2009, respectively for Bitcoin) and is released into the world over a certain period of time.
There are many crypto currencies in existence at present, however, the largest and most popular are Bitcoin, alternative versions of Bitcoin and Ethereum.
Bitcoin
What Is It?
Bitcoin was basically the early mover in this world of crypto currencies. The girl/s (or guy/s) that created Bitcoin are still unknown and go by the pseudonym Satoshi Nakamoto. Bitcoin was introduced to the world in January 2009, after the financial crisis of 2007/2008 (no evidential reason why but probably for the obvious reason that a financial crisis was not an ideal time to release a crypto currency to the world) and there will only be a total of 21 million Bitcoins in existence. They're slowly released/produced over time and this production will eventually come to a halt as was decided by Satoshi Nakamoto before Bitcoins were launched.
In February 2011, a single Bitcoin was worth around $1. In the summer of 2017, a single Bitcoin was worth around $4,000.
3 Ways To Pursue/Use Bitcoin:
- Mining - individuals or organisations may set out to solve the complex problems required to verify Bitcoin transactions in order to be rewarded with Bitcoins by the blockchain/Bitcoin system.
- Using Bitcoin to buy goods and services. Many companies and vendors are now beginning to accept Bitcoin as a form of payment.
- Last but not least, as an investment. Just like any commodity or currency, Bitcoin has a price which fluctuates based on supply and demand. One might invest in Bitcoin with the hope that the value of it increases over time.
Blockchain
What Is It?
Blockchain is like a public ledger. It records every transaction that happens between a buyer and seller of a Bitcoin (or other crypto currency). It shows every transaction that happens as a length of unique numbers/letters. This is publicly available. It doesn't play the role of a bank, but acts as a mid-point along the chain between the individuals transacting using crypto currencies and those transactions being confirmed as official.
Blockchain provides proof that a transaction happened i.e. buyer A gave buyer B a certain amount of Bitcoin, often in exchange for product or service X.
How Does It Record Transactions? ANSWER: Miners!
Miners are individuals or companies looking to exploit the use of data and algorithms in order to solve complex problems. They use machines which are connected to the internet (and generate a lot of heat whilst consuming a lot of electricity) to solve various puzzles in order to confirm a transaction between a buyer and a seller.
If a miner is able to solve a problem using a mining machine faster than anyone else, they will be rewarded with a Bitcoin for doing so. As mentioned earlier, this Bitcoin can be used as a store of value or as a medium of exchange to purchase goods and services.
Click here to see what these mining machines look like.
The Breakdown Of This Process:
- Two people make a transaction using Bitcoins (individual A purchases product X from seller B using Bitcoins).
- The registry or ledger, blockchain, needs to verify this transaction is legitimate and not a scam.
- Each transaction has a certain signature or identification key consisting of a formula/code.
- Thousands of miners are trying to use their mining machines to solve the problem in order to verify the transaction by identifying the formula/code.
- The machines often use trial and error thousands and even millions of times until they are either first to the solution, or someone beats them to it.
- The first miner to solve the problem and confirm the transaction is rewarded with a Bitcoin.
- This verification means the transaction is legit and not a scam.
- The transaction gets logged into the registry/ledger (the blockchain) for everyone to see.
- The miner mines for more Bitcoins.
- The blockchain gets longer.
At present, there are mixed views on Bitcoin, blockchain and the world of crypto currencies. Many people believe crypto currencies are the currencies of the future and that all of this is the way forward. Others believe it's a fad and a bubble that is waiting to pop. What do you think? Drop a comment below.
If this all sounded interesting at all, I'd definitely advise you to check out a few YouTube videos on the subject or explore relevant Google content as everything you need to know can be found online!
Thoughts or questions on this article? Let me know in the comments!
Know anyone who might find this article helpful? Spread the knowledge!
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Disclaimer:
The views and comments expressed in this article are solely those of Afzal Hussein and are not representative of any organisation, charity or third party.
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7 年I tought that informations were encrypted in the block ?
Innovation and Emerging technology Lead @ KPMG — Futurologist — M. Sc Foresight, Innovation & Disruption – Doctorate Student, Innovation Management
7 年Good and simple explanation Afzal. Read it Sara Sebban. However, Bitcoin is not the only cryptocurrency. Thanks to Ethereum, we can now create "blockchain apps" including currencies. Thanks to the concept of "smart contracts" Ethereum is now to Blockchain, what Javascript is to TCP/IP. Back in the 90s nobody was able to predict Facebook, Uber or Tinder, but now it is in our day to day landscape (not all of us for Tinder thanks God). It is impossible to predict what kind of applications Ethereum will allow us to create, but this technology will be as disruptive as Internet was.
"??Sales-driven problem solver and networking enthusiast, thriving on meaningful connections ?? — powered by a love for football ?and the discipline of calisthenics ????♂?????????."
7 年I agree Orcun D.