What do you know about Bitcoin, Cryptocurrency, and Blockchain? You’re not alone if you have heard these terms lately but don’t know what they mean. We will demystify these terms and explain what Bitcoin, cryptocurrency, and blockchain are all about.
Bitcoin is a digital or virtual currency that uses cryptography for security. It is decentralized, meaning it is not subject to government or financial institution control.
Bitcoin was created in 2009 by an anonymous person or group of people using the pseudonym Satoshi Nakamoto. Transactions get verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique because there are a finite number of them: 21 million.
Bitcoins get created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
Bitcoin is different from traditional fiat currencies (like the US dollar or Euro) because a central authority does not regulate it. Instead, it relies on a peer-to-peer network to verify and record transactions. This makes Bitcoin a decentralized currency.
Bitcoin is often called digital gold because of its limited supply and lack of central control. Like gold, Bitcoin can be used as a store of value or a medium of exchange. But unlike gold, Bitcoin is also used as a digital payment system.
Cryptocurrency is a type of digital asset that uses cryptography to secure its transactions and control the creation of new units. Cryptocurrencies are decentralized, not subject to government or financial institution control.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services. Some businesses even accept cryptocurrencies as payment. Cryptocurrencies are usually held in digital wallets and can be transferred between individuals.
Cryptocurrencies are volatile, meaning their prices can fluctuate sharply. This makes them a risky investment and creates the potential for high returns. Bitcoin and other cryptocurrencies have been the subject of much speculation over the years, and their prices have fluctuated wildly.
A blockchain is a digital ledger of all cryptocurrency transactions. It is constantly growing as “completed” blocks are added with a new set of recordings. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree).
By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can efficiently record transactions between two parties and verifiable and permanent.” A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks as a distributed ledger.
Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the consensus of the network majority. Although blockchain records are not unalterable, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance. Decentralized consensus is therefore claimed with a blockchain.
Bitcoin, cryptocurrency, and blockchain are all terms that you may have heard but don’t fully understand. We created this guide to help you better understand what they are and how they work. Hopefully, after reading this guide, you will better understand these concepts.