In this section, we will explore the following topics:
- Bitcoin
- The uses of bitcoin
- Blockchains
- Attributes of bitcoin and blockchain
Introduction to bitcoin and blockchains
What is bitcoin?
Bitcoin is a digital currency. This means that it exists only as an electronic record, and, unlike physical currency, you cannot hold it in your hand. You can send and receive money using bitcoin (just as you can with other methods), as well as pay for things and services with bitcoin. Bitcoin is interchangeable with traditional money.
There are exchanges where you can buy and sell bitcoin. There are many other digital currencies, but bitcoin is the first and the most popular. Bitcoin uses peer-to-peer technology to operate, with no central authority or banks managing transactions, and the issuing of bitcoin is carried out collectively by the network.
Bitcoin is open source—its design is public; nobody owns or controls bitcoin, and everybody can use it. Bitcoin is digital and decentralized. For the first time in history, people can exchange value without intermediaries, which translates to greater control of funds and lower fees.
It's a cryptocurrency, which means it's secured by design.
Uses of bitcoin
There are a lot of advantages to using bitcoin. Some of them are as follows:
- Fast and easy payments: It's extremely easy and fast to make payments with bitcoin. You do not have to worry about which software to use. The bitcoin network never sleeps, even on holidays. Sending payments internationally is also very easy; there are no banks to make anyone wait three business days, no extra fees for making an international transfer, and no special limitations on the minimum or maximum amount one can send.
- Privacy: Payment can be made using bitcoin without sharing any personal info; one does not need to sign up or share any card information. In fact, it is even possible to send a payment without revealing one's identity, almost like you can with physical money. However, take note that some effort may be required to protect privacy.
- Negligible transaction fees: There are very little or minimal transaction fees while making payments with bitcoin. There are no fees to receive bitcoins, and having many wallets allows you to control how large a fee to pay when spending. Most wallets have reasonable default fees, and higher fees can encourage faster confirmation of your transactions. Fees are unrelated to the amount transferred, so it's possible to send 100,000 bitcoins for the same fee it costs to send one bitcoin.
- Secure: Bitcoins are created and held electronically, but there is no credit card number involved that someone can steal as nobody can charge you money on your behalf. The transactions are made using military-grade cryptography and are highly confidential. Bitcoin will provide full access over your money and a high level of protection against almost all types of fraudulent works which involves certain steps.
- Multisignature: Bitcoin's multisignature feature allows businesses full control over their spending by allowing bitcoins to be spent only if a subset of a group of people authorize the transaction.
- Great for developers: For developers, bitcoin is the simplest of all payment systems. There are many third-party payment processing services that provide APIs. We don't need to store bitcoins on our server. If you don't use any third-party APIs, you can integrate a bitcoin node directly into your applications, allowing it to become your own bank and payment processor.
What is a blockchain?
In simple terms, a blockchain is a digital ledger. It's a public record of bitcoin transactions arranged in chronological order. It is a permissionless, distributed database based on the bitcoin protocol that maintains a continuously growing list of transactional data records. It is distributed so that each participant has the copy of the whole blockchain. The blockchain is shared between all bitcoin users.
It is used to verify the permanence of bitcoin transactions and to prevent double spending. It is secure and immutable, and it's also hardened against tampering and revision, even by operators of the data store's nodes.
Each blockchain record is enforced cryptographically, and hosts run machines working as data store nodes. A blockchain is made up of blocks. A block is a record in the blockchain that contains and confirms many waiting transactions, as shown at https://www.blockchain.com/explorer:
Roughly every ten minutes, a new block containing transactions is appended to the blockchain through mining. It is a file called the bitcoin blockchain sitting on thousands of computers across the world, perhaps even on your own PC at home. The file contains data about all bitcoin transactions—that is, the payment of bitcoins from one account to another—that have ever happened.
This is often called a ledger, and is similar to a bank ledger, which keeps a record of payments.
Attributes of bitcoin and blockchain
Both bitcoin and blockchains have the following similar attributes:
- Blockchain is the technology behind bitcoin. It works like a database for all bitcoin transactions, and it keeps all records of bitcoin transactions since the very first transaction. The initial and most widely known application of blockchain technology was the public ledger of transactions for bitcoin. However, digital currencies are not the only use for blockchain technology.
- Blockchain is a no-trust-based system, which can be used to conduct all kinds of transactions, such as digital contract signing. blockchain technology can be used to create a permanent public transparent ledger system for compiling data on sales, storing rights data by authenticating copyright registration, and so on.
There is even a digital nation founded on blockchain technology, called Bitnation.
