Introduction to Bitcoin | Cryptocurrency Explained
Posted by Carmen Zanfir
September 01, 2017

Bitcoin and Cryptocurrency are everywhere now, but when Blockchain first entered as the supporting tech for Bitcoin, it was barely noticed. At that time, most of the people had little experience with the complex coding and programming that were required to understand blockchain technology.

 

Time passed and Bitcoin and Cryptocurrency started to grow. Hence, Blockchain technology has begun to be used in so many different applications.

 

We live in an era where transparency and security are both well valued, and Blockchain seems to be a system where transactions can be both transparent and secure.

 

But do we know the meaning of the terms used in this introduction? Like “Bitcoin”, “Cryptocurrency”, or “Blockchain”? Do we know what exactly means these terms that have become more and more popular?

 

I decided to write an article where to tell you a little bit about these terms you meet every day. I am sure you know something about each of them, but it’s useful to know exactly their history.

 

What is Blockchain?

 

According to Wikipedia, the Blockchain is like a distributed database – to achieve independent verification of the chain of ownership of any and every Bitcoin amount, each network node stores its own copy of the Blockchain.

 

Investopedia says that:

a blockchain is a public ledger of all cryptocurrency transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block. 

 

bitcoin

 

What is Cryptocurrency?

 

Cryptocurrency is a:

digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.

 

Cryptocurrencies are classified into two parts:

 

1 – A subset of digital currencies;

2 – A subset of alternative currencies (Alt Coins).

 

About these two types of cryptocurrencies, we will talk later in an article dedicated to cryptocurrency.

 

What is an ICO?

 

ICO stands for Initial Coin Offering. An ICO is an unregulated means by which funds for a new cryptocurrency venture are raised. ICO is used by startups to bypass the rigorous capital raising process required by venture capitalist or banks.  

 

What is Bitcoin?

 

Bitcoin is actually a digital coin. Bitcoin was created in 2009 and is operated by a decentralized authority, since the system works without a central repository or single administrator.

 

Bitcoin was invented by an unknown group of programmers called Satoshi Nakamoto. We don’t know if this is a real man or a team that worked to invent what we call now the coin of the future.

 

The following article will present the history of Bitcoin and how the Bitcoin works, how to get Bitcoin, and I will also tell you about the Bitcoin wallets. 

 

Where did Bitcoin come from?

 

As I said before, the very first of Bitcoin era started from Satoshi Nakamoto. Satoshi Nakamoto – a real person or a group of programmers – published a paper with the title “Bitcoin: A Peer-to-Peer Electronic Cash System” where it was written about the Bitcoin digital currency. The paper was published in October 2008, and in January 2009, the first Bitcoin software was released. This Bitcoin software launched the network and the very first units of the Bitcoin currency that were called simply BITCOINS.

 

Version 0.1 of Bitcoin software was launched on 9 January 2009, on Sourceforge. They said that the work on the code writing started in 2007. The Bitcoin system is designed in an open-source manner that gives everybody the possibility to see and inspect it.

 

How does Bitcoin work?

 

If you are a new user, you don’t have to know the technical details to make transactions with Bitcoins. You just have to install a Bitcoin wallet on your computer, laptop, tablet or mobile phones. There is a Bitcoin Wallet app that you can install and you can find it here

 

The Bitcoin Wallet will generate your first Bitcoin address, but don’t worry! You can create more addresses whenever you want and need. You can disclose your addresses to your friends so that they can pay you or vice versa.

 

Bitcoin network relies on the blockchain system –  a shared public ledger. All transactions that are confirmed are included in the blockchain. This is the only way Bitcoin wallets can calculate the units spent from the balance, and the new transactions can be verified.

 

 

bitcoin

 

All transactions between users usually begin to be confirmed in the next 10 minutes through a process called MINING.

 

Mining is a distributed consensus that confirms the waiting transactions by including them in the blockchain. To get confirmations, the transactions must be packed in a block that fits cryptographic rules. The cryptographic rules will be verified by the network and their main role is to prevent previous blocks from being modified.

 

Mining, also, is like a competitive lottery because it prevents any individual from adding new blocks consecutively in the blockchain.

 

Ok, now we got the mining phase, let’s talk a little about this features of the mining process called “distributed consensus”.

 

The distributed consensus is used because of a traditional motivation: reliability in distributed systems. The protocols terminals and all correct nodes decide on the same value. This value must have been proposed by some correct node.

 

How could consensus work in Bitcoin? At any given time: all nodes have a sequence of blocks of transactions they have reached consensus on. Bitcoin consensus works better in practice than in theory. The theory is still catching up, but it has an important role in predicting the unforeseen attacks.

 

Let me show you how the consensus algorithm works:

 

1 – New transactions are broadcast to all nodes;

2 – Each node collects new transactions into a block;

3 – In each round, a random node gets to broadcast its block;

4 – Other nodes accept the block only if all transactions in it are valid (unspent and with valid signatures);

5 – Nodes express their acceptance of the block by including its hash in the next block they create.

 

And there is a question that everybody asks, and with this question I will finish my talk about the distributed consensus: Why is Bitcoin able to reach consensus in practice despite this is a generally difficult problem? Because financial incentives cause participants to work together and this consensus only has to be reached over a long time scale.

 

bitcoin
Source: weforum.org

 

Bitcoin Wallets

 

According to Investopedia:

a Bitcoin wallet is a software program where Bitcoins are stored. To be technically accurate, Bitcoins are not stored anywhere; there is a private key (secret number) for every Bitcoin address that is saved in the Bitcoin wallet of the person who owns the balance. Bitcoin wallets facilitate sending and receiving Bitcoins and give ownership of the Bitcoin balance to the user.  The Bitcoin wallet comes in many forms; desktop, mobile, web and hardware are the four main types of wallets.

 

Because we spend time both on our computers and mobile devices, there are many types of Bitcoin Wallets: Desktop Bitcoin Wallets, Mobile Bitcoin Wallets, Web Bitcoin Wallets, and Hardware Bitcoin Wallets.

 

Desktop Bitcoin Wallet

Desktop wallets are, obviously, installed on computers and laptops. They provide the user with complete control over his or her wallet. Desktop wallets let the user create an address in order to send and receive Bitcoins. Desktop wallets have the advantage that allows the user to store a private key.

 

Bitcoin CoreArmory, and Electrum are three from the many Desktop Bitcoin Wallets you can find.

 

A private key is a secret number that allows you to spend the Bitcoins in your wallet. How can this private key be built in a digital form? They use cryptography to generate a private key. They need an API for digital signatures. (insert picture with the digital signature photo from computer). Bitcoin uses ECDSA (Elliptic Curve Digital Signature Algorithm) standard to create a digital signature.

 

Mobile Bitcoin Wallet

Mobile wallets are exactly like the desktop wallets, despite the fact that you can run your transaction wherever you are. You don’t have to be at your computer to run a transaction.

 

bitcoin wallet

 

A mobile wallet facilitates in making payments in physical stores by using “touch-to-pay” via NFC scanning a QR code.

 

Bitcoin Wallet and Mycelium Wallet are just two from the many Mobile Bitcoins Wallets.

 

Web Bitcoin Wallet

A Web Bitcoin Wallet allows you to use Bitcoin from anywhere, from any browser you have at hand. Coinbase and Blockchain are the most popular Web Bitcoin Wallets.

 

Hardware Bitcoin Wallet

Hardware Wallets are very limited at this time. Hardware Wallets can hold private keys and let you make your payments, but they are in the development phase.

 

The Benefits of Bitcoin Transactions

 

1 – User anonymity: if you voluntarily publish your Bitcoin transactions, then you’re not anonymous anymore. But most of the Bitcoin transactions are never associated with your personal identity;

 

2 – No Third-party interruptions: banks, government or other intermediaries will not interrupt or freeze the Bitcoin transactions. The system is peer-to-peer, hence financial institutes will not interfere with your payments.

 

3 – No taxes on purchases: since there are the financial institutes cannot interfere, your payments cannot be tracked.

 

4 – Mobile Payments: due to the Bitcoin Wallets, you can make payments in any place you are.

 

 

 

bitcoin

 

Conclusion

 

Now that we finished the first article of the Cryptocurrency article series, let’s spot the important points of the article.

 

As you could see, the first article was a lot like an introduction to Bitcoin and what gravitates around it. You could see what means Blockchain and Cryptocurrency, and you found out what an ICO is.

 

Blockchain: public ledger of all cryptocurrency transactions that have ever been executed.

 

Cryptocurrency: digital or virtual currency that uses cryptography for security.

 

ICO stands for Initial Coin Offering.

 

Bitcoin: a digital coin. Bitcoin was created in 2009 and is operated by a decentralized authority since the system works without a central repository or single administrator.

 

Bitcoin wallets facilitate sending and receiving Bitcoins and give ownership of the Bitcoin balance to the user.

 

 

That’s all for today. See you next time when we will talk more about Blockchain.

Until then, take a look at this great way to make Bitcoin transactions by simply enrolling in a Football Fantasy game. FootballCoin is the game that allows you build a great football team, to manage it and win Bitcoins. 

 

Subscribe to our Newsletter

x

Get updated with the latest trends in IT technology.