Intro to Bitcoin, Blockchain and Cryptocurrency.
Lets go deep into these buzzwords and find out their relevance in today's time.
If you are not living under a rock, you must have heard of some or all of these words. Most people tend to use Bitcoin, Blockchain, and Cryptocurrency interchangeably which is not right. Through this article, I would try to explain in simple words what do these terms mean and why there is so much buzz about this.
First, let’s start with the definitions
Cryptocurrency: Cryptocurrency is any form of currency that exists digitally or virtually and doesn't have a central issuing or regulating authority, instead of using a decentralized system to record transactions and issue new units.
Bitcoin: Bitcoin is the name of the best-known cryptocurrency.
Blockchain: Blockchain is the technology that enables the existence of cryptocurrency (and therefore Bitcoin).
Why Cryptocurrency?
Before going into the technical details, let's try to understand why the cryptocurrency is gaining so much popularity lately. Every digital transaction or online payment we make today is made by involving banks as middlemen. There are many problems associated with this such as banks having downtime at the time of transfer, hacking of software used by banks, too much power with the admin of these banks as they can very easily change or alter the data, etc. Cryptocurrency enables secure online payments without the use of third-party intermediaries. "Crypto" refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.
Hence advantages like cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure make cryptocurrency very popular and useful for today's time.
How do Blockchain works?
A blockchain is a decentralized ledger of all transactions across a peer-to-peer network. You can think of a ledger as a series (or chain) of blocks on which transaction details are recorded after suitable authentication and verification by the designated network participants. Using this technology, participants can confirm transactions without a need for a central clearing authority.
Suppose Person A wants to send 5 Bitcoins to Person B. This requested transaction is broadcasted to a P2P network consisting of computers, known as nodes. This network of nodes verifies whether Person A has the balance to send that amount to Person B and other details related to the user. Once verified, the transaction is combined with other transactions to create a new block of data for the ledger. The new block is then added to the existing blockchain in a way that is permanent and unalterable. After this, the transaction is completed.
There are many potential use cases of this technology. Apart from usage in the financial industry, blockchain can be used in electoral voting and healthcare industries for faster and more transparent working.
Future Scope
From a business perspective, it’s helpful to think of blockchain technology as a type of next-generation business process improvement software. Collaborative technology, such as blockchain, promises the ability to improve the business processes that occur between companies, radically lowering the “cost of trust.”
Cryptocurrencies such as Bitcoin as of now are seen as an investment option. They are digital currencies and are not backed by real assets or tangible securities. They are traded between consenting parties with no broker and tracked on digital ledgers. It would be interesting to see if cryptocurrencies in the future can be used as a medium of exchange.