What is Bitcoin? A beginner’s guide to Cryptocurrency in 2021 | Crypto made easy
Cryptocurrency is the new hot topic. Almost everyone is talking about Bitcoin, dogecoin, crypto investment, etc, but ironically a very few people understand what it is actually about.
If you are reading this article, you probably haven’t invested in Bitcoin or any other crypto but are curious about what this kinda new fad is.
In this article, I’ll break down the whole concept of Cryptocurrency and make it simpler for you.
In this article, you’ll get a fair idea about:
1. What is Bitcoin Cryptocurrency?
2. Blockchain: the technology behind Cryptocurrency
3. What is mining in Cryptocurrency?
4. Key attributes of cryptocurrency | What makes Bitcoin worthy?
What is Bitcoin Cryptocurrency?
To put it simply, Bitcoin is a type of Cryptocurrency. In fact, it was the first cryptocurrency to be invented. Now, what is cryptocurrency?
Cryptocurrency is internet-based decentralized money. ‘Crypto’ in cryptocurrency refers to cryptography which is a method of using encryption and decryption to secure communication in the presence of a third party.
Cryptocurrency is digital money for the internet that utilizes blockchain technology to allow anonymous transactions.
Digital currency is meant to be a medium of exchange. Just like rupee or dollar, bitcoin or altcoins (altcoin means any cryptocurrency other than bitcoin) is a token of value, but these are digital tokens that can’t be duplicated, unlike the conventional fiat money.
Blockchain: the technology behind Cryptocurrency
Cryptocurrency works on a technology called the blockchain. Now, blockchain technology is a separate arena in itself and a bit technical.
Basically, it is a system of storing information in the form of blocks, and these blocks are connected with each other forming a chain network.
In the case of crypto, the information stored in blocks is the ledger record of transactions that is duplicated and distributed across computer systems in the entire blockchain network.
In the words of Buchi Okoro, CEO, and co-founder of African cryptocurrency exchange Quidax,
“Imagine a book where you write down everything you spend money on each day. Each page is similar to a block, and the entire book, a group of pages, is a blockchain.”
The database is distributed, thus decentralized. This means that even if one block is changed, it would be immediately apparent, which makes hacking impossible in a blockchain network.
Hence, blockchain is secure, anonymous, decentralized, and immutable.
Also, blockchain for different cryptocurrencies is different. For instance, Bitcoin uses bitcoin blockchain, dogecoin uses luckycoin blockchain, and so on.
What is mining in Cryptocurrency? The purpose of mining
When any transaction is made, the information goes to every computer system in the blockchain network. These transactions have to be confirmed by a majority of these computer systems to be successful.
This process of confirmation is called mining. And these computers are miners. The process involves solving complex mathematical problems.
If a transaction is not confirmed by a majority of computers, it fails.
This also means that if any hacker is trying to manipulate a transaction, that manipulation has to be confirmed by a majority of computers on the blockchain network.
This is why hacking in the blockchain is next to impossible. The computer systems on the blockchain network simply won’t agree to false information. Hence, the network is protected and secure.
Mining also serves another interesting purpose.
In mining, whosoever solves the problem first, is awarded an ‘X’ amount of cryptocurrency. And this is also how more cryptocurrency is generated.
In simple words, mining is nothing but rewarding the people who are protecting the network by solving complex problems.
For bitcoin, a mining limit of 21 million has been set. This means at max 21 million bitcoins will be mined. Presently, 18.5 million have already been mined out of this.
Key attributes of cryptocurrency | What makes Bitcoin worthy?
Cryptocurrency enthusiasts believe that cryptocurrencies like bitcoin and altcoins have enormous potential and are the currencies of the future. The following key features of cryptocurrency makes it popular:
Cryptocurrency works on highly decentralized blockchain technology.
There is no third-party involvement like banks or government.
All you need to transact in crypto is a phone and internet. This essentially gives the power in the hands of people with almost zero transaction cost.
2. Secure & anonymous
Blockchain technology is very secure and protected. The identity of the user is anonymous as transactions take place through an address which is just a combination of numbers.
3. Borderless transactions
The transactions take place without any geographical restrictions.
It doesn’t matter whether you are transferring crypto to your neighbor or to a person in Australia.
4. Controlled supply
In conventional currency, the government has the power to print unlimited currency leading to inflation. But cryptocurrencies like Bitcoin have a set limit, it is designed to increase in value, not inflation.
With that being said, crypto as an investment is a high risk, high profit/loss. The critics like Warren Buffet believe that crypto hype is a bubble and it does not have a future. All in all, there are a lot of ongoing discussions with crypto gaining huge traction.
As you’ll explore the world of cryptocurrency, you’ll discover that it is a very very vast topic. What you have read here is just a raindrop in the ocean:)
DISCLAIMER: This article has been written for informational purposes only and by no means is investment advice. Readers are advised to do their own research before making any investment decision.