What is Proof of Stake and how is it different form Prove of Work
Proof-of-stake is a consensus algorithm used by cryptocurrencies to process transactions and add new blocks to a blockchain. A consensus mechanism is a technique for approving entries into a distributed database and maintaining the security of the database. A blockchain is the term used to describe the database in the context of cryptocurrencies, and the consensus mechanism protects the blockchain.
The proof-of-stake (PoS) protocol is intended to decrease network congestion and environmental sustainability concerns. Due to the competitive nature of proof-of-work as a method of transaction verification, people are compelled to seek for advantages, especially when money is at stake.
By approving transactions and blocks, bitcoin miners are paid in bitcoin. However, they need fiat money to cover their operating costs like rent and power. The reason PoW mining consumes so much energy is because miners are actually trading their energy like electricity for cryptocurrencies.
By basically replacing processing power with staking, whereby the network randomly selects a user’s mining capacity, the PoS technique aims to address these issues. Since miners can no longer rely on enormous farms of specialized hardware to gain an advantage, there should be a significant decrease in energy consumption.
How Is Proof-of-Stake Different From Proof-of-Work?
Blockchains are able to synchronize data, validate data, and conduct transactions thanks to proof of stake and proof of work. Despite having advantages and disadvantages, each approach has been shown to be effective in maintaining a blockchain. But the strategies used by the two algorithms are significantly different.
Under PoS, block creators are called validators. A validator checks transactions, verifies activity, votes on outcomes, and maintains records. Under PoW, block creators are called miners. Miners work to solve for the hash, a cryptographic number, to verify transactions. In return for solving the hash, they are rewarded with a coin.
You simply need to possess enough coins or tokens to qualify as a validator on a PoS blockchain in order to buy into the role of a block creator. For PoW, miners must make significant investments in processing hardware and pay high energy costs to power the machines running the computations.
PoW mining requires expensive energy and equipment, which restricts who may mine and increases the blockchain’s security. Blockchains with a PoS model require less computing power to verify blocks and transactions. Additionally, the approach reduces network congestion and gets rid of the motivation that PoW blockchains have based on rewards.
| Proof of Stake (PoS) | Proof of Work (PoW) |
| Block creators are called validators | Block creators are called miners |
| Participants must own coins or tokens to become a validator | Participants must buy equipment and energy to become a miner |
| Energy efficient | Not energy efficient |
| Security through community control | Robust security due to expensive upfront requirement |
| Validators receive transactions fees as rewards | Miners receive block rewards |
KEY TAKEAWAYS
- With proof-of-stake (POS), cryptocurrency owners validate block transactions based on the number of staked coins.
- Proof-of-stake (POS) was created as an alternative to Proof-of-work (POW), the original consensus mechanism used to validate a blockchain and add new blocks.
- While PoW mechanisms require miners to solve cryptographic puzzles, PoS mechanisms require validators to hold and stake tokens for the privilege of earning transaction fees.
- Proof-of-stake (POS) is seen as less risky regarding the potential for an attack on the network, as it structures compensation in a way that makes an attack less advantageous.
- The next block writer on the blockchain is selected at random, with higher odds being assigned to nodes with larger stake positions.
What Is Proof of Work?
Proof of work, also known as PoW, is a technique for authenticating and monitoring the creation of new cryptocurrency and transactions that take place on a blockchain for cryptocurrencies. Proof-of-work algorithms are used by cryptocurrencies like bitcoin to sustain their corresponding crypto networks.
How Does Proof of Work Work?
To be granted permission to mine a block of bitcoin, cryptocurrency miners must demonstrate proof of work as quickly as possible. The “work” is resolving extremely challenging mathematical puzzles, and the “proof” is the solution.
In order to win the opportunity to validate a block of cryptocurrency transactions, computers specializing in quickly solving these challenging arithmetic problems compete against one another. The successful miner that validates the block receives payment in bitcoin as a reward
Crypto miners utilize computing hardware that is made to fast authenticate crypto transactions and keep track of previous transactions for the blockchain network in order to finish computational work quickly. Anyone can securely send and receive digital assets by using cryptography technology.
Proof of work is used to validate transactions in Bitcoin, the first and biggest cryptocurrency by market capitalization. Open source software powers Bitcoin’s proof-of-work algorithm. Proof of work cryptocurrency mining is accessible to everyone with the required hardware and computing expertise.
While not the only way to run a cryptocurrency network, proof of work is currently the algorithm that is most often utilized.
Step by step, here’s how the proof of work method works:
- Transactions are pooled: Cryptocurrency users initiate transactions, which are pooled into a block.
- Miners compete: Crypto miners compete on the basis of computational power to be the first to solve a complex math problem. Showing proof of this computational work earns the miner the right to process the block of transactions.
- New block is processed: The winning miner processes the block of transactions, plus mints more of the cryptocurrency, and adds a new block to the cryptocurrency’s blockchain.
- Blockchain is updated: The new block is then distributed to all other miners, who each maintain a copy of the blockchain for the cryptocurrency network.
Key Takeaways
- Proof of work is a method that uses computing power to achieve distributed consensus.
- Proof of work cryptocurrencies rely on large networks of computers operated by crypto miners, who are responsible for verifying and tracking transactions and minting new currency.
- Proof of work transactions are maintained on a public distributed ledger called a blockchain, which is nearly impossible to hack or edit.
- Anyone with a compatible computer, a fast internet connection, and the right computer skills, can use the proof of work protocol as a crypto miner.
WHAT IS CRYPTOCURRENCY MINING?
The number of people interested in investing in cryptocurrencies is rising day by day. There are, however, very few people who can fully comprehend the underlying technology, even among those who regularly trade cryptocurrencies.
This is due to the fact that cryptocurrencies are currently mostly used as a way for speculation. Many people only care about making money and have no other concerns. To engage in trading, only a bare minimum of technical expertise is necessary, but we think it’s still helpful to understand the fundamentals. Education will remove the ambiguity and skepticism that still dominate the general public’s perception of Bitcoin and other cryptocurrencies.
What Is Crypto Mining?
Cryptocurrencies generate new coins and validate new transactions through a process called mining. Numerous global, decentralized computer networks are used to validate and secure blockchains.
“Mining” is a term used to describe the process of validating transactions that are waiting to be added to the blockchain database. Mining is essential on Proof of Work blockchains like Bitcoin’s. Newer blockchains tend to use Proof of Stake and other consensus mechanisms, and they do not need or allow mining.
How does Crypto mining work?
A cryptocurrency like Bitcoin can be acquired in three different ways.
- You can get them as payment for goods or services,
- Get them from an exchange company like Yiksi Exchange.
- And lastly you can “mine” them online
Calculations needed to safeguard the blockchain and validate and log each new transaction are done by specialized computers. A significant amount of computational power is needed to verify the blockchain, which is voluntarily provided by miners.
Crypto mining is a lot like running a big data center. Companies or individuals purchase the mining hardware and pay for the electricity required to keep it running.
We can make a quick comparison with using credit cards in the traditional electronic money system, the credit card company is required to confirm and record each payment (for example, MasterCard or Visa). We may claim that the whole cash movement of the modern banking system is documented in centralized systems, which are particularly vulnerable to manipulation. On the other hand, Cryptocurrencies like Bitcoin don’t need centralized institutions that verify transactions, this work is done by the miners.
The procedure is known as mining because it has many similarities to gold mining. In both cases, a significant amount of time and effort are invested to create a highly valuable asset.
Mining requires a considerable amount of computing resources to solve complex mathematical equations known as hashes.
Hash: A complex randomly generated algorithmic equation that miners must solve in exchange for crypto rewards.
Why is mining important?
In aside from adding new coins into the crypto market, mining is crucial to the security of cryptocurrencies since it secures and verifies the blockchain, enabling them to operate as a peer-to-peer decentralized network without the need for third-party supervision.
What are DApps?
Why pay a middlemen when you want to buy a piece of land when you can use an app that links the land owner directly to the buyer and doesn’t charge a fee? That is the assurance that dapps, or decentralized apps are offering.
What is a dapp (decentralized application)?
Decentralized apps are also known as DApps and they operate just like regular apps and offer similar features, but the main difference is that they utilize smart contracts through blockchain technology.
Dapps are decentralized, meaning no one person or organization can have complete control over them.
The following traits are commonly found in different DApps:
- Their data and records are available to the public;
- They are open-source and run independently without being under the jurisdiction of any one body.
- To keep their network safe, they use cryptography.
What are the benefits of dapps?
Dapps have a number of interesting features:
Can not be censored – It is particularly difficult for governments or other strong people to censor the network of DApps.
No outage – By relying on a peer-to-peer network, the dapps are protected from interruptions caused by malfunctioning computers or sections of the network which means if some of the computers connect to the network do not function, it will not have an impact on the system.
Open-source – These promotes the wide expansion of the dapp ecosystem and give developers the ability to create better dapps with more interesting or useful features.
Some of the well known dapps that exist today
Decentralized finance (DeFi) applications like decentralized exchanges (DEXs). are currently among the most well-known dapps that allows users to swap once cryptocurrency for another without the need for a centralized gatekeeper like those found on exchanges like Binance and Coinbase.
The future of dapps
DApp development is still in its infancy. However, there are already thousands of dapps that provide a wide range of services, including trading NFTs and investing in DeFi, hence DApps are expected to grow bigger and better as time goes by.
Coins and Tokens: WHAT ARE THEY?
First, let’s address a minor distinction that causes many beginners to struggle while seeking to understand the fundamentals of cryptocurrencies. Coins and tokens are the two types of cryptocurrency.
Coins
It is a cryptocurrency that has its own blockchain, like Bitcoin, Ethereum, Litecoin, and Ripple are all referred to as a coin.
When someone talks about “buying cryptocurrencies,” they mean purchasing coins.
Token
A token is a cryptocurrency that is created on a different blockchain, such as a DApp that utilizes Ethereum’s blockchain.
Tokens are sold (or given) during a project’s first public offering and serve as a representation of an asset or function. Tokens can be divided into two categories: security and utility.
Utility Token
A utility token is only meant to be used to purchase products and services from the platform or firm that issued it.
Security Token
A security token functions as a share of an enterprise’s value by acting as a digital representation of financial security. To put it another words, security tokens create income for their owners by paying dividends, splitting profits, interest, or investing in other assets or tokens.
If a digital asset satisfies these three requirements, it is regarded as a security token.
- Financial investment is necessary.
- Only one business receives the funds raised.
- Investors provide funds in the hope of earning income from the third party’s work.
The Various Forms of Cryptocurrencies
Most people likely think of Bitcoin when they hear about cryptocurrencies. Bitcoin is regarded as the cryptocurrency’s pioneer, having launched thousands of other coins. In the emerging field of digital currency, Bitcoin had little to no competition when it first appeared in 2009. But by 2011, new varieties of cryptocurrencies started to appear as competitors, and suddenly the race to produce more crypto was on.
The cutting-edge nature of cryptocurrency’s blockchain technology is one of the reasons it has so many people’s hearts, minds, and wallets. It’s impressive that blockchain technology and the idea of decentralization are applicable not only to the financial sector but to so many other societal requirements and purposes as well.
Most popular cryptocurrencies
Bitcoin (BTC)
Since its launch in 2009, Bitcoin, also known as “digital gold” or the “gold standard for cryptocurrencies,” has dominated the market. Bitcoin dominates the other cryptocurrencies with the lion’s share of the overall cryptocurrency market cap, having a market capitalization of over $900 billion.
Litecoin (LTC)
Known as the “silver to Bitcoin’s gold,” In order to compete with Bitcoin, Litecoin was developed as a split from Bitcoin and was designed to conduct transactions more quickly and inexpensively than Bitcoin.
Ethereum (ETH)
While Ethereum is a formidable cryptocurrency in its own right, it is not designed to function as a peer-to-peer payment system in the same way as Bitcoin. Ethereum was introduced in 2015 in order to support distributed applications (also known as “decentralized” apps or dApps) and smart contracts (to know what dApps and Smart contracts are, keep reading this article till the end)
Tether (USDT)
USDT’s performance as a stablecoin, token holders have a secure way to store money and carry out transactions thanks to USDT’s tying of the token’s value to the US dollar. Other stablecoins, such TrueUSD (TUSD) and Pax Dollar, were developed as a result of USDT’s popularity (USDP). Additionally tied to the US dollar, these tokens offer holders a reliable method of storing value and carrying out transactions. A trustworthy store of value is required in the cryptocurrency market, as evidenced by the rising demand for stablecoins.
Wondering what stable coins and tokens are? Worry not, we will cover this in our next article.
U.S. Dollar Coin (USDC)
Another stablecoin that has been a huge success is the U.S. Dollar Coin (USDC). The USDC is backed by the U.S. dollar and has a market valuation of more than $55 billion, it is one of the most well-known stablecoins. It’s important to note that USDC is not just popular among traders, it’s also largely used by corporations.
Binance USD (BUSD)
Another stablecoin tied to the US dollar is Binance USD (BUSD). In collaboration with the trust firm Paxos in New York, Binance introduced BUSD. BUSD is a cryptocurrency that can be traded against other well-known cryptocurrencies like Bitcoin, Ethereum, Binance and Tether.
Why do cryptocurrencies come in different forms?
Bitcoin was created as an alternative form of payment (similar to money), but not all countries allow the use of cryptocurrencies as legal currency. In other cases, some countries have prohibited the use of crypto. As a result, a large portion of the different forms of cryptocurrency are not used at all as money or currency, rather, some cryptocurrencies are used as investment vehicles, stores of value that may be bought, sold, or traded on crypto exchanges. Numerous more cryptocurrency networks provide uses other than only exchanging of currencies. As time goes by, blockchain can as well provide solutions in industries other than finance, such as supply chain management, real estate, healthcare, and cybersecurity.
What’s Blockchain Technology and How does it work?
Blockchains are often explained with a lot of tech jargon by people in mathematics, cryptography, and
network engineering. It turns out that blockchains are more straightforward than you might think, at least
for the most part.
Imagine how simple life would be if you could send money quickly and cheaply to family members who
live thousands of miles away. Imagine having total control over your finances without needing the bank’s
authorization to view or transfer funds. Additionally, you might keep your money in a digital wallet
without a bank controlling it. These are all realities that are made feasible by blockchain, which has many
benefits and potential. But what exactly is blockchain?
What Is Blockchain Technology?
Blockchain is an unchangeable and shared digital ledger that stores records or transactions in several
places on a network of computers. Here, each verified transaction is added in a space called a block that
links with other subsequent blocks with the help of cryptography, forming a chain.
If that definition made you scratch your head, let’s understand blockchain technology in simpler terms.
Blockchain is a kind of database that stores data (records) on a computer electronically.
Block = A space that contains records
Chain = A link connecting records
So, a chain of linked blocks containing records is called a blockchain.
Fast Facts:
- A blockchain is a form of database, more specifically a distributed database.
- The data stored on a blockchain are cryptocurrency transactions.
- Blockchains store data (transactions) in chronological groups, known as blocks, instead of folders and
tables like normal databases. - Bitcoin’s blockchain is open and accessible to anyone, unlike a centralized database run by a company or
government. - Unlike databases where information can be added, removed, or edited, blockchains can only be added to.
Ledgers and the Hawala system.
We must comprehend the concept of a ledger before diving into the world of blockchain. Since they are
only a record of a transaction, ledgers have been used for ages to keep track of transactions. In truth,
many regions of the world used (and still use today) an unofficial payments transfer mechanism known as
hawala before Western banking as we know it existed. It is a fairly straightforward system based on trust
and a ledger!
For instance, Farah wants to send money to Mohamed. Farah goes to Hawala dealer A and gives him the
money. Hawala dealer A gets in touch with hawala dealer B, who agrees to give Mohamed the money.
Hawala dealers A and B have a ledger to keep track of all the transactions and settle up eventually at the
right time. Cash is given, but there is no actual physical transfer of funds. Yet again, the "double-spending
dilemma" is avoided in this scenario, although perhaps not in the digital space.
The concept of a ledger is legitimate since it records and keeps track of all transactions.But who is in
charge of the ledger in the digital world? Could they fake transactions, replicate digital notes, or change
the ledger in some other way? While the Hawala system and ledger are founded on trust and shared
among a small group of individuals, blockchain offers a ledger that is visible to any number of people and
substitutes “proof of work”; for trust.
What is data?
- Data is just information, and it may be presented in countless forms, including text, images, and videos.
In the past, we kept this kind of data on tangible items like paper or film. We can save this material
digitally thanks to contemporary technology.
What is database?
Learning what a database is will help you grasp blockchain better.
- A database is a sizable collection of data that is kept on servers and is simple to access, administer, and
update.
Sometimes, this vast amount of data necessitates the operation of hundreds or thousands of servers in
enormous structures are known as server farms (huge buildings with thousands of computers).
Blockchain vs. Database
A database compiles a sizable amount of data and organizes it in a structured manner so users can
simultaneously and easily alter data. Additionally, larger databases employ servers with powerful
computers to store vast amounts of data and run calculations. A database is typically owned by a business
or an individual, who also maintains and regulates access to it. Blockchain, on the other hand, gathers data
in groups or blocks with a set amount of storage. Blocks join together to form chains when their capacity
is reached. The new block is comprised of all the newly added records that come after it.
A blockchain doesn’t have a single owner like a typical database; instead, anyone with authorization can
access it. Due to the lack of a single hub to manage the blockchain, it is also known as a decentralized
system. In a similar vein, blockchain technology is also known as DLT (DLT). Users can exchange data
or carry out transactions peer-to-peer without the need for a centralized authority thanks to this distributed
ledger of records. It aims to date a digital document and guarantees that it cannot be altered. Without using
a third-party intermediary like the government or a bank, it enables secure asset transactions and helps
resolve difficulties with double records.
This internet-based technology is made up of various components, including databases, networked
computers or nodes, software applications, and more.
Types of Blockchains
There are various types of blockchain, and depending on the type, users can use this technology for a
variety of purposes. As a result, many blockchain types include:
Public Blockchains
Blockchains enable a decentralized, open network of many computers where anybody can request or
check the accuracy of a transaction. It enables users to access all blocks on the blockchain, add new
blocks, and validate data.
Examples: Bitcoin, Litecoin, and Ethereum blockchains.
Private Blockchains
Private blockchains are centralized and controlled by one or more entities that choose who has access to
the network, who can be added as a node, and who can verify data. Private blockchains offer access
controls and are closed systems, in contrast to public blockchains. A private blockchain requires
permission from the administrator before anyone may join.
Example: B2B virtual currency exchanges like Hyperledger.
Consortium Blockchains
These permissioned blockchains are governed by a network of businesses or organizations rather than a
single person. They have greater decentralization than a private blockchain, which increases security. It
permits restricted access, and the current nodes control the consensus procedure.
Hybrid Blockchain
Blockchains that are hybrids combine the benefits of private and public blockchains. They enable
companies to build up a permission-based private blockchain in addition to a public blockchain and can
be centralized or decentralized. As a result, the organizations have control over what data is publicly
accessible on the blockchain and how it is accessed.
Advantages and Limitations of Blockchain
Advantages of blockchain
The benefits of blockchain are:
Accuracy
On a blockchain network, thousands of nodes verify each transaction. It is strong enough to get rid of
mistakes and give more accurate statistics. Even if an error occurs, other computers can find it right away.
Furthermore, for this error to succeed, at least 51% of all machines in the network would need to commit
the same error, which is virtually unattainable, especially when a significant blockchain like Bitcoin is
involved.
Decentralization
A blockchain is decentralized; it is not controlled or managed by a single central point. It implies that a
network of thousands of computers can access it without being governed by a single entity or group.
Every network node with authorization is immediately updated by any change in the blockchain.
Cost-efficiency
With blockchain, there is no need for a third party to approve a transaction and incur processing fees. For
instance, banks or payment processors assess a little fee for handling a transaction. As a result, firms that
use blockchain technology, like Bitcoin, for payment transactions can save a lot of money.
Speed
From the time the payment is initiated until the money appears on your account, traditional banking
systems take a long time to process such payments. Financial institutions can only operate within their
designated business days and hours. Thus, it can take days for the complete amount to appear on your
bank statement. Blockchain, on the other hand, cannot be stopped. Transactions can take a few minutes to
complete, and it is operational 24/7/365. Additionally, it is quite advantageous for international payments.
Immutability
A blockchain’s trustworthy encryption system, cryptographic hashing, and chronological chaining of
blocks make all the records immutable or unchangeable. As a result, data cannot be changed or deleted.
Security
Before a transaction is included to a block on a blockchain, thousands of powerful computers confirm the
legitimacy of the record. Blockchain technology assigns a distinct hash to each block for identification
and performs complex calculations and algorithms for validation.
Even if an attacker makes changes, they are immediately accessible to all nodes, allowing them to spot
errors and invalidate the current block as well as all blocks that come after it. It provides a high level of
security as a result.
Transparency
With no central authority, most blockchains, like public blockchains, are open-source software. It allows
everyone to access the code and auditors to review for security. Anyone in the network can suggest
upgrades or changes, and if the majority of users agree, it can be accepted. This way, blockchain offers
higher transparency than traditional systems. In addition, you can also stay anonymous to protect your
privacy.
Limitations of Blockchain
Illegal activities
Blockchain provides users with high security and privacy, but it also attracts a lot of unlawful trading and
activities. Theft and security breaches involving blockchain-based currency and services are common.
Environmental concerns
Bitcoin and other blockchain networks use a lot of electricity to mine and validate transactions, which has
an impact on the environment.
Scalability issues
Scalability is still a problem, even though blockchains are quicker than traditional financial institutions.
They are challenging to grow internationally and may result in inefficiencies. However, modern
innovations are emerging to increase scalability, like as Ethereum’s Innovative Layer 2. (L2).
Nevertheless, a lot of people continue to argue that blockchain’s benefits outweigh its drawbacks, and as a
result, blockchain adoption is rising across a range of applications and sectors internationally.
Want to know what Cryptocurrency and Bitcoin is and how they work, you can read our article on;
Cryptocurrency for beginners here.
What Bitcoin is and how it works here
The difference between Digital Currency and Cryptocurrencies
As we had hinted in the previous articles one may easily confuse “cryptocurrencies” and “Digital
currency.”
The two might seem interchangeable, but they mean two different things, whereas digital
currency refers to any currency that exists online Cryptocurrency refers to currency held as a
record on a blockchain database.
You may be wondering what a blockchain is. Well, this is a system or a shared ledger that
cannot be changed and facilitates the process of recording transactions and tracking assets in a
business network. Unlike traditional currency in digital form, which attracts localized taxes since
it’s viewed as money and income, cryptocurrency, or other purely digital assets on the other hand
are viewed by the international revenue Service (IRS) as property.
Essentially, we are digging deeper to give you more insights for you to make a wise decision
whether to invest in Cryptocurrency or digital currency.
For digital currency this is any currency that is recorded and transferred on computers, for
example dollars in an online account. You can hold traditional currency in physical or digital
form depending on how you store it.
What exactly is Digital Currency?
Digital currency is a currency that is recorded and transferred only on computers. It has no
physical counterpart, meaning that it has no printed or minted form in the real world. This refers
to a pure digital currency and is generally the preferred usage for most Somalis.
The difference is that under the more common definition, dollars, pounds and euros can exist as
digital currencies when they’re held and moved online. The second, narrower, definition of
digital currency refers to currency that has no physical notes or coins.
Some banks and governments have begun to explore creating digital currencies as a form of
intermediary value to use when executing cross-border transactions. In some of the countries
globally however, the pure digital currencies do exist, and governments do not treat them as
money.
Under Internal Revenue Service (IRS) rules, digital (or “virtual”) currencies are considered
property for taxation purposes. This means that you do not value the asset on its own merits.
Instead, you pay taxes based on what it is worth in terms of dollars.
What Is Cryptocurrency?
Cryptocurrency comes as purely virtual currency, basically meaning that it has no official
physical asset. However, key to note is that crypto is recorded and stored on a blockchain
database, and it applies to assets like Bitcoin
At the same time, cryptocurrencies and blockchain are largely inseparable. All crypto projects
use blockchain for their security and data storage. When you own a cryptocurrency, you own an
entry in a database. The ledger will record that specific crypto such as bitcoin belonging to you.
When you spend it, the ledger will update that entry to reflect the bitcoin’s new owner.
Consequently, cryptocurrency is a form of digital currency. But not all digital currencies are
cryptocurrency.
Bottom Line
Cryptocurrency refers to the exclusively digital currency that is based on the blockchain storage
format. Although sometimes the term can be used to refer to any currency secured with
cryptography, this is not the preferred use of that term.
If you have read to this end, we believe you are interested in knowing more about
cryptocurrency and how it works. Well, we have got you covered, below are the links to
some of our articles on Cryptocurrency:
Cryptocurrency for beginners.
What is Bitcoin and how does it work?
What is Blockchain Technology?
What is Bitcoin? History, Characteristics, Advantages and Disadvantages
What is Bitcoin?
Not only is Bitcoin (BTC) the first cryptocurrency, but it’s also the best known of the more than
19,000 cryptocurrencies in existence today. Financial media eagerly covers each new dramatic
high and stomach-churning decline, making Bitcoin an inescapable part of the landscape.
Bitcoin was created in January 2009 as a decentralized digital currency that you can buy, sell and
exchange directly, without an intermediary like a bank.
Bitcoin is a new currency created by an unknown person using the name “Satoshi Nakamoto”.
Transactions are done without a middleman – meaning, no banks! Satoshi Nakamoto originally
described the need for “an electronic payment system based on cryptographic proof instead of
trust.”
Bitcoin works on a program called “Blockchain”, which is ultimately very alluring and interesting.
Blockchain is a secure database shared by all participating parties on established, distributed
computer networks.
Since its public launch in 2009, Bitcoin has risen dramatically in value. Although it once sold for
under $150 per coin and has since risen to $30,200 per coin, Currently Bitcoin boasts of $23,150
per coin. Because its supply is limited to 21 million coins, many expect its price to only keep
rising as time goes on, especially as more large institutional investors begin treating it as a sort of
digital gold to hedge against market volatility and inflation. Currently, there are more than 19
million coins in circulation.
How does Bitcoin work?
Bitcoin is built on a distributed digital record called a blockchain. As the name implies,
blockchain is a linked body of data, made up of units called blocks containing information about
each transaction, including date and time, total value, buyer and seller, and a unique identifying
code for each exchange. Entries are strung together in chronological order, creating a digital
chain of blocks.
Once a block is added to the blockchain, it becomes accessible to anyone who wishes to view it,
acting as a public ledger of cryptocurrency transactions.
Blockchain is decentralized, which means it’s not controlled by any organization. Nobody owns
it, but anyone who has a link can contribute to it. And as different people update it, your copy
also gets updated. While the idea that anyone can edit the blockchain might sound risky, it’s
actually what makes Bitcoin trustworthy and secure. For a transaction block to be added to the
Bitcoin blockchain, it must be verified by the majority of all Bitcoin holders, and the unique
codes used to recognize users’ wallets and transactions must conform to the right encryption
pattern.
BTC transactions may take a few minutes to complete due to the verification process and depend
on the trading platform. The Bitcoin system is meant to take around 10 minutes to mine each
transaction.
Features of Bitcoin
1. Widespread
The network’s independence from any official body was one of Satoshi Nakamoto’s main goals
when he created Bitcoin. It is designed so that any individual or company can become a member
of a large network through the use of calculations in the process of mining and verifying
transactions. In addition, even if part of the network is offline, the payment will continue.
2. Confidentiality
Banks these days know everything about their customers, including their credit history,
addresses, phone numbers, and shopping habits. Also, Google and Facebook’s computer systems
are able to track all our behavior with just a few clicks. When we use Bitcoin, everything is
different since the wallet we use to save and use our money is not tied to personal information.
Because every BTC transaction that has ever taken place is recorded on the Blockchain, Bitcoin’s
privacy is only relative. In principle, by carefully examining the blockchain record, anyone can
find out how much money is in your wallet address if it is publicly disclosed. However, tracing a
Bitcoin address back to a person is still impossible.
Those who prefer to keep their business private can take precautions to remain undetected. There
are wallets that emphasize efficiency and security, but the most straightforward precaution is to
use multiple addresses and avoid transferring too much money to one wallet.
3. Openness
As mentioned earlier, transactions on the Bitcoin Blockchain network are stored in the Public
Ledger, which is recorded on the Blockchain and accessible to everyone. This means that all the
actions of the network are public, but the private characteristics of each user in the network
cannot be tracked.
4. Speed
The Bitcoin Blockchain network’s operations are designed to be carried out in a matter of
minutes, regardless of the location of the participants in the operation. Compared to national and
international financial services, Bitcoin has a very important place in terms of transaction
processing time.
5. Irrevocable
There is no way to reverse a transaction after it has been recorded on the Bitcoin Blockchain.
This power can be a double-edged sword, so we must use it carefully. On the other hand, it is
useful since we can be sure that every Bitcoin we receive will never be returned to the person
who sent it to us, but we must keep in mind that this process can also be harmful when we
transfer it to Bitcoin. other. address Before doing any kind of procedure, double-check that
everything is in order.
How To Trade Bitcoin?
To buy, sell, and trade Bitcoin – you will need to use a third-party platform. Depending on the
type of asset structure you want to invest in, this can be a specialized cryptocurrency exchange or
a regulated broker. Importantly, this will depend on whether you plan to trade Bitcoin on a short-
term/day trading basis or hold your investment for the long-term.
As the field of cryptocurrency investment has become more and more widespread, exchanges
and brokers are now offering modern financial tools. This includes the bilateral futures market
known as the CME (Chicago Mercantile Exchange) and the CBOE (Chicago Board Options
Exchange)- two of the largest exchanges in the world. That being said, while CME and CBOE
are dedicated to institutional investors, you can also find Bitcoin futures markets as a retail
investor.
Advantage of Bitcoin
1. Freedom
Freedom is described as a valued asset in today’s protected environment. We cannot claim to be
free from government control and surveillance if we are subject to hundreds of taxes and
restrictions on our ability to freely use our money.
Bitcoin is unaffected by these restrictions and offers us a level of freedom that no other asset can
match. We are not really controlled by strict monetary policies set by Governments, we don’t
need to worry about inflation or interest rates created by government organizations, so we can
use our money freely in Bitcoin. Bitcoin, only market rules.
2. Choose your Board
Another undeniable advantage of the Bitcoin network is the ability to determine the amount of
transaction commission paid, or to pay none at all. After a new block with a successful hash is
created, the miner receives the transaction board. In most cases, the sender pays the full cost;
however, the recipient’s deduction may be considered an underpayment.
Commissions are completely optional and serve as an incentive for miners to guarantee that a
particular transaction is quickly added to a new block. This incentive also serves as a source of
income for mining, which brings more money than normal mining, especially when we consider
that mining will completely stop in the future when the production of Bitcoin is completed.
As a result, customers have to choose between the cost and the waiting time in the bitcoin
market. A larger panel indicates faster processing, while a lower panel suggests the transaction
will take longer to complete.
3. Lack of PCI
The Payment Card Industry (PCI) consists of debit, prepaid credit, electronic wallet, ATM, and
purchase cards, as well as the companies that support them. It includes all companies that store,
handle, or transfer cardholder data and is subject to security and regulatory laws.
While the same rules and regulations are useful for large companies, they may fail to consider
the requirements of individual employees. By using Bitcoin, users can avoid having to comply
with PCI regulations, allowing them to expand into new regions where credit cards are not
accepted or fraud rates are high.
Users benefit from reduced commissions, lower administrative costs, and the ability to expand
their markets because they are not controlled by this organization.
4. Control and security
No one can manage Bitcoin transactions from us, which means no one can withdraw money from
our account without permission. Within the Bitcoin Blockchain Network, all our funds are secure
and cannot be stolen or tampered with.
In addition, our identity and personal details are completely protected in these places as we do
not need to provide any information to benefit from Bitcoin on the Blockchain network. What we
will have to do with our personal data is to go through the authentication process, which is
required by the exchange and other websites where Bitcoin is bought and sold in FIAT cash.
5. Transparency and neutrality
Every transaction on the Bitcoin Blockchain, as well as every piece of information related to it, is
constantly visible to everyone on the Blockchain and can be verified and leveraged in real-time.
Because the BTC protocol is anonymous, no person or organization can change or control it at
will. Since the network is decentralized, no single person can fully control it. For all these things,
Bitcoin will always be neutral, transparent, and predictable.
Disadvantages of Bitcoin
1. Legal Matters
We cannot argue that there really is one universal Bitcoin law; Every nation has its own, and
there is a big difference between them. The use and trading of Bitcoin is encouraged in certain
countries, but is prohibited and illegal in others.
Different countries have recognized that Bitcoin can be used for various illegal activities, so they
have tried to regulate it. Some people are concerned about its use of the dark web as a payment
option for criminal operations including drug trafficking and weapons purchases.
Other countries argue that the use of Bitcoin is used for money laundering and tax evasion,
resulting in a loss of cash for governments around the world.
2. Level of recognition
Bitcoin does not need a law to operate; whether it continues to be recognized as a financial asset
by the government; however, the absence of regulation and regulation of Bitcoin still creates
confusion in its use.
Companies around the world will not be able to establish their legitimacy or illegitimacy until
there is a clear law that controls their legitimacy or illegitimacy. In addition, many investment
funds are still undecided whether to engage in this market or not until governments make tough
choices about money.
3. Lost keys
A key is an alphanumeric password that allows you to access your Bitcoin wallet. If you lose
your key, you will also lose your wallet. Most modern wallets, on the other hand, contain storage
and retrieval systems, but must be configured before use.
4. Consolidation
The price of Bitcoin has been unpredictable, with big ups and downs, as well as many cycles of
ups and downs. Throughout history, BTC has risen to new highs only to drop to new lows
quickly. Its price is unpredictably changing, changing quickly and drastically, which can cause
serious financial losses to the risky investor who does not know how the market works.
5. Continuous improvement
Although Bitcoin technology is not yet fully established, it is growing as more developers join
the project. Also, cryptocurrency is not yet widely accepted, which means we still don’t know
how it will work after everyone adopts it. We have no idea if the network will be able to be
widely adopted or, on the contrary, will fail.
Want to know what Cryptocurrency is and how it works, you can read our article on
Cryptocurrency for beginners here.