Blockchain for beginners
To better understand the bitcoin concept and the bitcoin mining, let’s start at the beginning, 2008.
The Blockchain is a concept revealed back then by a person (or a group of people) called “Satoshi Nakamoto”.
Blockchain is a technology of a scattered log, based on a peer-to-peer network (P2P).
What does it mean?
It means that it is not managed in one place under a centralized entity server,
but on the computers of the participants in the network.
So it’s a virtual ledger, and it is accessible for everyone to see.
A ledger is similar to a database, with different key attributes:
Unlike Fiat money, it is decentralized.
It is distributed, meaning it is spread across the whole network.
It is encrypted and anonymous.
It cannot be removed or changed.
A blockchain software can actually run on anyone’s computer and is updated in real-time globally.
Bitcoin is the first currency developed by this technology, but many coins have entered the cryptocurrency market after the bitcoin.
The Bitcoin blockchain is actually an accounting diary:
Each block in the blockchain is a page in this accounting journal and contains all the money transfers made in the last 10 minutes.
The money transfer (transaction) is actually a registration:
My wallet address sent X Bitcoin to your wallet address.
The main essence of the blockchain, and the reason it is so unique, is the encryption behind it.
Each page in the log is encrypted using extremely strong encryption, to the page in front of it.
So from the first block created (the Genesis block) to the last block that just opened, there is a pious mathematical connection.
Encryption means preventing log history from being rewritten.
If someone tries to scroll back in the accounting journal and change the transfer amount he made to 0 (double waste), the mathematical relationship will automatically be damaged.
The system will detect that there is a rewritten attempt, and the rewrite attempt will soon be deleted and the chain will continue as usual.
The Bitcoin blockchain is built on the mining mechanism, called ‘Proof of Work’.
The function of the mechanism is to keep the encrypted mathematical connection from being damaged.
The bitcoin miners operate computing power, competing with each other for the signature and approval of the block created.
Through manipulations and changes in the block title and content, the stacking function of the current block is changed.
The miners must perform these manipulations until the resulting stacking function is the same as that defined by the system.
The first miner to win the competition and sign the block – receives a reward from the protocol in the form of bitcoin coins.
Another important attribute in the context of cryptographic stacking functions is that they are unidirectional.
The intention is to reach the goal set by the system. If you reached it, it is very easy to restore the input that was inserted to reach it.
This way, users and other miners can verify that the work of the miner who signed the block is truly reliable.
As soon as a block is cut and your transaction is included in it – you will receive first approval for your transaction.
Any additional confirmation is a confirmation of the cryptographic connection between Block and its predecessor.
Blockchain for beginners – summary:
The blockchain is a distributed network log that is on users’ computers, updated globally in real-time by everyone, and based on cryptography for system security and transactions.
Decentralization: The real advantage of Bitcoin, is freedom from governments and banks’ control over our money.
Accelerating transaction: To transfer money abroad, we will usually have to wait between three days and a week. Using Bitcoin, money can be transferred anywhere in the world, even in a quarter of an hour.
Reduced transfer fees: For the same bank transfer that we make abroad and will take several days, we will also need to add a high transfer fee. In Bitcoin, the fee is minimal.
Can not be forged – thanks to the cryptographic connection between Block and its predecessor.
Increased transparency and trust – the fact that the accounting diary (blockchain) is online, updated in real-time, and exposed to the naked eye – indicates that it is more transparent and reliable than systems that exist in the world today.
Bitcoin is not completely anonymous – When we as Bitcoin holders make a money transfer, our wallet address is exposed to the blockchain diary. The system can not link the wallet address to us directly.
However, we are still assisted by mediators in daily life. To trade in the digital currency exchange, for example, we will need to verify our identity. To purchase Bitcoin through a money changer, we will need to disclose our credit card.
Through these ways, it will be possible to associate our public wallet address with our personal identity.
Regulation – Although Bitcoin and the world of cryptocurrencies exist for more than 10 years now, legal aspects in many countries are still unclear;
How will governments treat it in terms of legislation, enforcement, and taxation?
These questions result in a market that is hacked into a wide variety of scammers and thieves who will try to steal your money in the most creative ways.