Illustrating Blockchain Technology and a Brief Introduction to Bitcoin
I heard the term ‘blockchain’ a year or two ago and dismissed it as a technical jargon that I thought would eventually fade, maybe you would have thought the same about it and considered it to be a fad or merely buzzword. But due to its recent hype, somehow “blockchain” and “bitcoin” is creeping in every possible discussion. Since I didn’t want to be left out from most of the conversations so I had no other choice than to get to know more about this technology.
So after contributing days to get to know about bitcoin and it’s technology, I rethought about my interpretation of bitcoin, now I believe that blockchain is a technological advancement that will have wide-reaching implications and it will not just transform the financial services but many other businesses and industries.
The hype of blockchain has been rising exponentially, however, most of the people know nothing about how blockchain technology works. Since I have grasped the new found knowledge about it, I’m writing this article to give an introduction in most humanly language possible.
So, the main question “What is Blockchain”?
The blockchain is a distributed database system that acts as an “open ledger” to store and manage transactions. Each record in the database is called a block and contains details such as the transaction timestamp as well as a link to the previous block. This makes it impossible for anyone to alter information about the records retrospectively. Also, due to the fact that the same transaction is recorded over multiple, distributed database systems, the technology is secure by design. We can consider it as a network of computers having an identical copy of the database and changing its state (records) by a common agreement based on pure mathematics.
Let’s deduce the blockchain illustration above through an example,
Imagine A want to send some money to B. He chooses to use blockchain based technology to transfer it. So, let’s see how will he proceed and the procedure to make the transaction of money from A to B.
-The transaction is represented online as a “block”.
-The block is broadcast to every party in the network.
-Those in the network approves the transaction is valid.
-The block then can be added to the chain which provides an indelible and transparent record of the transaction.
-Hence the transaction is done, the money is sent by A to B.
With keeping the above illustration in mind, it can be said that blockchain is immutable, information remains in the same state for as long as the network exists.
Blockchains are secure databases by design. The concept was introduced in 2008 and then implemented for the first time in 2009 as part of the digital bitcoin currency; the blockchain serves as the public ledger for all bitcoin transactions. By using a blockchain system, bitcoin was the first digital currency to solve the double spending problem without the use of an authoritative body or central server.
As mentioned above, the concept of bitcoin was introduced by pseudonymous Satoshi Nakamoto in the year 2008 to solve the problem of “double spending” of virtual currency.
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What is Double Spending and how does Bitcoin handles it?
Double Spending is the risk and the fraud that a digital currency can be spent twice. Double-spending is a problem unique to digital currencies because digital information can be reproduced relatively easily. Physical currencies do not have this issue because they cannot be easily replicated, and the parties involved in a transaction can immediately verify the bona fides of the physical currency. With digital currency, there is a risk that the holder could make a copy of the digital token and send it to a merchant or another party while retaining the original. This was a concern initially with Bitcoin, the most popular digital currency or “cryptocurrency,” since it is a decentralized currency with no central agency to verify that it is spent only once. However, Bitcoin has a mechanism based on transaction logs to verify the authenticity of each transaction and prevent double-counting.
Let’s disintegrate Double Spending and how Bitcoin swooped in to save cryptocurrency
Bitcoin requires that all transactions, without exception, be included in a shared public transaction log which is Blockchain. This mechanism ensures that the party spending the bitcoins really owns them, and also prevents double-counting and other frauds. The blockchain of verified transactions is built up over time as more and more transactions are added to it. Bitcoin transactions take some time to verify because the process involves intensive number-crunching and complex algorithms that take up a great deal of computing power. It is, therefore, exceedingly difficult to duplicate or falsify the blockchain because of the immense amount of computing power that would be required to do so.
Hackers have tried to get around the Bitcoin verification system by using methods such as out-computing the blockchain security mechanism or using a double-spending technique that involves sending a fraudulent transaction log to a seller and another to the rest of the Bitcoin network. These ploys have met with only limited success. In fact, most Bitcoin thefts so far have not involved double-counting, but rather have been due to users storing bitcoins without adequate safety measures.
Usually, people refer “Bitcoin” as a decentralized digital currency but I prefer to call it as an “electronic asset”. There are many reasons due to which general public took so many years to clear their mind block and to give Bitcoin the recognition that it deserves though many people are still hesitant to use it and to bait their money on it. Years 2017 and 2016 have played a huge role in providing Bitcoin a real identity.
Where does bitcoin come from?
Bitcoin has no central bank and isn’t linked to or regulated by any state. The supply of the cryptocurrency is decentralized, it can only be increased by a process known as “mining”. For each bitcoin transaction, a computer owned by a bitcoin “miner” must solve a difficult mathematical problem and the miner then receives a fraction of a bitcoin as a reward.
Reason to use Bitcoin and Cryptocurrency
I think of bitcoin like just another international currency like dollar or euro but what makes bitcoin different is that it is decentralized and its home ground is the internet. Since people have been hesitating to use it and invest their money due to its unclear understanding or the fear of the unknown but if we put bitcoin in another way we can say that if the internet were a country, bitcoin would be its currency, it makes complete sense, like if you buy some shares from any other currency, you would have the same fear of losing them in the thrust of sharemarket. It’s just for the first time, we have an entirely digital asset which can be controlled by the end user, without requiring signup with an institution.
There are several reasons to use bitcoin and to inculcate the usage of cryptocurrency in our day to day lives,
1. Fraud-proof: When cryptocurrency is created, all confirmed transactions are stored in a public ledger. The sole reason that bitcoin was created was to get rid of double spending fraud and to save crypto-currency. All identities of coin owners are encrypted to ensure the legitimacy of record keeping. Because the currency is decentralized, you own it. Neither government nor bank has any control over it.
2. Instant Settlement: Blockchain is the reason why cryptocurrency has any value. Ease of use is the reason why cryptocurrency is in high demand. All you need is a smart device, an internet connection and instantly you become your own bank making payments and money transfers.
3. Accessible: There are over two billion people with access to the Internet who don’t have rights to use to traditional exchange systems. These individuals are clued-in for the crypto.
4. It’s as private as you want it to be: Sometimes, we don’t want people knowing what we have purchased. Bitcoin is a relatively private currency. On the one hand, it is transparent, thanks to the blockchain, everyone knows how much a particular bitcoin address holds in transactions. They know where those transactions came from, and where they’re sent. On the other hand, unlike conventional bank accounts, no one knows who holds a particular bitcoin address. It’s like having a clear plastic wallet with no visible owner. Everyone can look inside it, but no one knows whose it is. However, it’s worth pointing out that people who use bitcoin unwisely risk making it easier to identify them online.
In the end, I can’t stress this enough, but bitcoin is a highly experimental digital asset. It’s kind of like investing money in a Kickstarter or a startup. You have no idea what the end result is going to look like. You may very well get your money’s worth, or you may end up losing big. If you are going to invest money in bitcoins, or really any other form of cryptocurrency, please remember to do your research and study the graphs so that you may know where the price is headed. Shedding a few dollars worth of money in cryptocurrency assets may be a good way to make some quick money this holiday season. It might also be just the thing you need to clear off those huge holiday debts. However, be cautious and proceed with the research accordingly.
RW Infotech is a tech-savvy and trend-setting web development firm in India, we make sure to follow all forthcoming trends and to set milestones with our talented bunch of Web Developers/ Designers, UI/UX experts, digital marketing leaders. To add a new chapter in our legacy and stay in sync with the current trend, we are taking a defining step to add cryptocurrency such as blockchain web development in our services.