by MICHAEL SMART June 8, 2020
Today cryptocurrencies have become a global phenomenon known by most people but understood by few.
In 2018 you’d be hard pressed to find a major bank, accounting firm, software company, or government entity that hasn’t researched cryptocurrencies or started their own Block-Chain project.
Beyond the FUD (fear,uncertainty, and doubt) and speculative press releases, many people often fail to understand the basic concepts, so let’s do a quick overview.
What Are Cryptocurrencies?
An anonymous actor named “Satoshi Nakamoto” invented Bitcoin in 2008 as a peer-to-peer electronic cash system.
To realize digital cash, you need a payment network with accounts, balances and transactions that’s easy to understand. One major problem every payment network has, is to prevent double spending. Essentially that means to prevent one entity from spending the same amount twice.
Usually this is done by a central server That keeps records of all the balances. What differs about a decentralized network is, you don’t have this server.. so you need every single node, i.e. computer or active entity on the network to do this job. every peer in the network needs to have a full list with all the transactions to check if future transactions are valid, also if anyone attempts to double spend. So, how do these entities keep a consensus (agree) of these records?
If everyone on the network disagrees about even one single minor balance, everything breaks.There needs to be an absolute consensus.
Up until 2008 when Satoshi discovered it, nobody even knew it was possible. Cryptocurrencies are a vital component of the solution. Here is a brief illustration. In this illustration we will look at the transactions on the network. ( all transactions must be signed using a personalized digital signature)
A transaction is a file that states: Tim sends X bitcoin to Tammy and is signed by Tim. Once Tim signs, the transaction is broadcast to the network , sent from one peer, to every-other peer.
After a specified time the transaction is confirmed by the miners, which is the only way a transaction can be confirmed. That is their soul purpose in the Cryptocurrency network. They validate transactions, then spread them to the network.
The miners are given an incentive to complete these tasks by receiving payment in cryptocurrencies. In this example, they are paid in Bitcoin. After a transaction is confirmed by a miner, all the other nodes in the network must add it to their database and it becomes part of the block-chain.
Who can mine Bitcoin?
Any one can be a bitcoin miner, they just need to give up a considerable amount of their computers power to make sure they can execute the task.
Miners across the network compete to solve a cryptographic puzzle. The first miner to complete the transaction and add it to the block-chain is the miner to receive the bitcoin reward. Essentially that’s it.
There are many underlying benefits of using cryptocurrency which i will go into in more detail in various places on our website. I just wanted to clear up any misconceived notions as to what bitcoin was. Bitcoin is not fake internet money, it did not come out of thin air. Bitcoin and other digital currencies solve real world problems, have real value based on real work by real people and computers and some ( including myself) say it (Bitcoin), or at the very least, block-chain technology, is the future of payments. I personally believe it will be integrated into every technology that utilized the internet of things (iot).
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