Blockchain is a software technology that is used to maintain the integrity of a certain type of digital information. It was initially invented for a digital currency “Bitcoin”. Before delving into blockchain let us understand the concept of bitcoin.
“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.”
– Leon Louw (Nobel Peace prize nominee).
In an era where everything is digital, the exchange medium was bound to become digital.
A cryptocurrency, like a name suggests, is a cryptographic currency, meaning it involves cryptography and math computation. Like physical currencies, cryptocurrency is also a medium of exchange but only used on the internet. Cryptocurrencies use cryptographic techniques to provide security for online transactions. Bitcoin is a cryptocurrency.
A bitcoin is a digital currency, a replacement for the physical currency. Bitcoins can be used to buy things electronically on the internet.
Net banking provides the facility of fund transfer but requires a fee. Bitcoins are independent of any fee. There is no central authority, like banks, to control bitcoins. Hence it is also known as the first decentralized digital currency. With bitcoins, all the transactions are anonymous. The sender name, recipient name, other details which a bank would have stated as mandatory are not required here. Bitcoins are not tied to any country or subject to any kind of regulation like a normal bank. Bitcoins allow anyone to have an account with just a mobile phone, no ID required.
There is no limit on bitcoins. They are created by a group of people that anyone can join, in the way of a transaction.
To understand what is special about Bitcoin, we need to know how it works at a technical level rather than the theoretical concept, which is also difficult to understand.
Obviously, there is no ownership! Bitcoin users control the flow of bitcoins (sender and recipient). They only require a bitcoin software that ensures everything is consistent.
List of bitcoin software – https://www.bitcoinmining.com/bitcoin-mining-software/
Bitcoin Network – Peer to peer (P2P) Architecture
We know what a peer to peer network is. Bitcoin uses peer-to-peer technology to operate. The sender will directly send bitcoins to the receiver without the need of a third-party support. The network has no place for a control authority. Bitcoin transactions like issuing and sending bitcoins are collectively managed by the network or rather a public ledger in the network.
Satoshi- The Inventor.
Bitcoins are said to have been created by Satoshi Nakamoto. There is vague information on his real identity. Speculations are made that Satoshi is from japan, but some other information state otherwise. He released a bitcoin software client in 2009.
Advantages of bitcoins
- Transferred directly person to person without going through a bank or clearinghouse.
- No pre-requisites
- No frozen account
- No limits
- No paperwork
- No third-party involvement
Disadvantages of bitcoins
- They are not yet widely accepted
- Lack of authority. This can lead to fraud.
- It is still under development
Detailed advantages and disadvantages can be read here- https://coinreport.net/coin-101/advantages-and-disadvantages-of-bitcoin/
We understood the concept of bitcoin and how it is operated decentralized. Let us look at the different ways in which bitcoin can be earned or collected.
Well, you cannot create bitcoins, or can you? Ok, will come to it later. For now, some ways of earning bitcoins are as follows:
- You can simply buy them – Coinbase, BIPS market, and many other bitcoin exchanges.
- You can exchange them for traditional currencies.
- For any good or services, you can have the option of accepting money as bitcoins.
- Bitcoin mining as an individual.
- Bitcoin mining via mining pools.
The efforts involved in mining often provides good results, then be it data or gold!
For more information read Blockchain and Bitcoins 101 – Part 2