Cryptocurrency? Blockchain technology?

woetez (48)in #bitcoin • 7 years ago (edited)

This is for those who have little to no understanding about blockchain technology and cryptocurrencies like Bitcoin, a Peer-to-Peer Electronic Cash System.

I feel the need to write this because many people I know still have no clue about the subject.
There is no doubt this technology will impact everyone in the not too distant future, like airplanes or the internet did. And it's not just Bitcoin, that's what did spark the new technology but blockchain has many uses.

Most people have at least heard something about Bitcoin but many still don't know what it is, unknown is unloved...

But can you explain what money is? Do you know how it is created?
Yet you use it everyday.
Understanding a technology is not necessary for using it. Many people don't fully understand the underlying technology of their smart-phones, computers, electric appliances, cars, etc...

But having a basic understanding of how something works can help to see the uses.
So we start with the basics, we will get to the uses and what it can do for you further on.

What is cryptocurrency?

3 definitions:

A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. (en.oxforddictionaries.com)
A digital currency or decentralized system of exchange that uses advanced cryptography for security. (dictionary.com)
A digital currency produced by a public network, rather than any government, that uses cryptography to make sure payments are sent and received safely. (dictionary.cambridge.org)

Three words are key here: digital, decentralized and encryption.
So Bitcoin is a digital currency that is produced by a decentralized public network, generated and protected by cryptography.

So we now know the meaning of the word cryptocurrency, but we also have more questions now. What is a decentralized public network? How can cryptography generate a currency?
And the answers to these questions we will find in our next part: the blockchain.

blockchain and future of distributed ledger technology 1600x360.png

What is blockchain?

 3 definitions:

A digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. (en.oxforddictionaries.com)
A shared record of past transactions in a cryptocurrency network. (yourdictionary.com)
A blockchain is a distributed database that maintains a continuously growing list of records, called blocks, which are linked and secured using cryptography. (wikipedia.org)

So we have a chain of blocks that is distributed over a decentralized network. The network has no central point, every part of the network acts as a witness of the distributed list, checking every transaction, in this way no one can cheat the list.

For Bitcoin, each block is 'mined' before it is added to the chain. It is a complex mathematical process, but it can be explained in a simple way.
Every block of transactions also contains a mathematical puzzle. All computers in the network, the miners, will try to solve this puzzle by guessing the answer, kind of like a lottery. This puzzle is extremely difficult to solve, but once the solution is found it is easy to verify. After verification by the network the new block is added to the chain. The miner who finds the solution will be rewarded with brand new Bitcoins.

The amount of Bitcoins generated will decrease over time, as Bitcoin is limited in supply, only 21 million Bitcoins can be created. Right now there are 16.5 million Bitcoins, it is estimated the last one will be mined in 2140. The newly created Bitcoins are not the only incentive for maintaining the network, users can choose a transaction fee for the miners, the higher the fee, the higher the priority of transaction.

It is called mining because it resembles mining of gold or other resources, it requires a lot of effort and the resources become available at a ever slower rate until minerals are eventually depleted.

What other uses are there for blockchain technology?

The disruptive blockchain technology underlying Bitcoin was invented in 2008 by Satoshi Nakamoto, an alias, the real identity still remains a mistery. This invention is quite genius, and it is definitely not limited to it's use as electronic payment system.
There is already an entire ecosystem of cryptocurrencies out there, but what else is there?

Almost ten years after it's inception, there are countless new applications already on the market or being developed based on blockchain technology. Many industries will see radical changes in the coming years.
It is said that blockchain will do to the financial system what the internet did to media.
Besides payment systems we can see decentralized exchanges on the rise.

We now have decentralized social-media, like steemit, D-tube and others. It is possible for artists to publish their music on blockchain, protecting their rights and cutting out the middle-man.
And the list goes on, decentralized power grid, smart-contracts, smart-property, blockchain healthcare, blockchain voting, blockchain insurance and much more!