Aren’t You Addicted To Crypto Yet?
Bitcoin Explained (Part 1)
It’s a great pleasure to introduce Biditex readers our new guide for Bitcoin beginners. It consists of 5 articles that will explain what is Bitcoin (BTC), how it works and how you can use cryptocurrency in everyday life.
Bitcoin has become, or rather — is, one of the most desired cryptocurrencies today, yet some people don’t know it too well. Bitcoin comes with its own set of terms, which would be useful for you to know even if you’re not intending to trade. Beginners, as well as experts, encounter the same terms, and without knowing them, it would be fairly difficult for someone to understand the currency. Here we list out 8 of the most ordinary ones.
1. Cryptocurrency
A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.
The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference.
2. Blockchain
If you have been following banking, investing, or cryptocurrency over the last ten years, you may be familiar with “blockchain,” the record-keeping technology behind bitcoin. And there’s a good chance that it only makes so much sense. In trying to learn more about blockchain, you’ve probably encountered a definition like this: “blockchain is a distributed, decentralized, public ledger.”
Blockchain is easier to understand than that definition sounds. It is just a chain of blocks, but not in the traditional sense of those words.
When we say the words “block” and “chain” in this context, we are talking about digital information (the block) stored in a public database (the chain).
3. Block
Blocks on the blockchain are made up of digital pieces of information. Specifically, they have three parts:
- Blocks store information about transactions like the date, time, and dollar amount of your most recent purchase from a purchase.
- Blocks store information about who is participating in transactions.
- Blocks store information that distinguishes them from other blocks.
A single block on the blockchain can store up to 1 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.
4. Cryptography
According to the basic definitions of cryptography, it is the process or art of making and deciphering codes. Cryptography is the foundation of Bitcoin, which is why it is called a ‘cryptocurrency.’ Bitcoin transactions are anonymous. This happens largely because of cryptography. The information is sent in an encrypted format and it can be decrypted only at the end of the receiver so that no one else can see it in the middle. This not only makes the transaction anonymous but also secure. This technology is used in blockchain hash functions and bitcoin addresses.
5. Decentralization
All of us have heard that bitcoin is a ‘decentralized’ currency. But why? This is because no country or organization owns the bitcoin network. The working of bitcoin is based on a peer to peer protocol. All work is partitioned between the people who own bitcoin. The users need to communicate with each other and send information to each other, instead of approaching an organization such as a bank.
6. Private Key
Whenever we use an online payment gateway, we either have a password or a code with the help of which we can spend our money, and no one else can. Similarly, in bitcoin, you have a password, using which you can spend the bitcoins from your bitcoin wallet through a cryptographic signature. This password, like any other password, should never be revealed to anyone.
7. Cold Storage
With the help of a bitcoin private key, you can securely store your bitcoins in a secure offline environment. It is the reverse of hot storage in which one needs to be connected to the web for all transactions. There are different ways in which bitcoin can be stored in cold storage- for example, a USB drive or some other storage medium, a paper wallet, as physical bitcoins, etc.
8. Double Spending
We’ve covered this explanation in our comprehensive ultimate bitcoin guide. Double spending typically means spending the same money twice. Suppose we pay a shopkeeper Rs. 100. Now the shopkeeper owns that money, and we cannot use the same money to buy something else. However, in the case of digital currency, our money is in the form of bits, which are much easier to copy and hence double spending is theoretically possible.
Stay tuned to find more things about Bitcoin and its Mining and Trading process in our coming articles. Find links below:
