Simple Guide To Understand Blockchain Technology In BitCoin Using Cryptography
“Blockchain” is a word that has been thrown around a lot in the last two years but not many can accurately describe this technology that has taken the world by a storm. Let’s break down the meaning, working and its benefits to truly understand it.
Blockchain is NOT a cryptocurrency, NOT a programming language and NOT a part of AI. Instead, blockchain is a technology. It is a technology that makes use of a sequence of blocks (or groups of transactions) that is chained together (thus the name, blockchain). These blocks are distributed amongst all the users of this technology. Blockchain technology enables instantaneous transactions and does not require any middleman to be involved and is completely decentralized. And while this technology gained a lot of traction all over the world in the last couple of years, it is important to keep in mind that it is constantly evolving. Work is happening to make it better, faster, more secure, close any loopholes, etc.
Now that we have a basic understanding of what blockchain is, let’s take a look at how it works.
Blockchain enables you or anyone for that matter to send ‘value’ to anyone in the world (provided this person has access to blockchain technology as well). Your transfer value to another person provided your own blocks. This transaction will reflect on the main database and therefore everyone who has access to the blockchain can see and verify. This means that the blockchain technology is completely decentralized and no single entity has the database. This ensures security and transparency. Whatever transaction has been made is cryptographically stored and is therefore secure. Blockchain combines the pillars of decentralization, transparency, and immutability.
The process and working of blockchain reveal certain indisputable benefits such as greater transparency, enhanced security, increased efficiency, and reduced costs. Evolution of this technology is bound to bring in more and more advantages of using blockchain and you will see a lot more industries looking to adopt this technology.
Understanding cryptography need not be cryptic
Cryptography is the practice and art of securing data by encrypting information into a format which is unreadable and only people with a secret key can decipher the said message. While cryptanalysis can break the encryption, it usually is virtually impossible to do so. Evolution of technology has done wonders for security but unfortunately has also increased a hacker’s tech advancement. Cryptography is classified into two categories namely Symmetric key cryptography and asymmetric key cryptography. Symmetric key cryptography entails that the sender and the receiver both have the same key that encrypts and decrypts the message. Asymmetric key cryptography means that the sender and receiver have two different keys; one for encrypting and the second for decrypting. While these keys are different, they are related to each other mathematically.
Four pillars that are associated with cryptography are Confidentiality, integrity, non-repudiation, and authentication. For a system to be a cryptosystem, it has to meet these four criteria. The use of cryptography is not limited anymore and is used pretty much all over the internet. One popular app that uses cryptography is WhatsApp.
Bitcoin: It has arrived and it is here to stay
Bitcoin is a cryptocurrency. It is often also termed as a digital asset. It works as a medium of exchange much like money in the offline world does but is not controlled by any government or bank. It eliminates the middleman completely. Cryptography is what comes into play when it comes to the creation and management of bitcoin and bitcoin thus does not rely on any other authority. Bitcoin was invented in 2008 by an unknown person (or even a group of people) with the name Satoshi Nakamoto. It was in 2009 that bitcoin’s source code was released as open-source software. A lot of people mistake bitcoin to be the only cryptocurrency which is far from reality. While bitcoin is hugely popular, there are other several cryptocurrencies floating in the market such as Ethereum, Ripple, Litecoin, etc.
It was in 2011 and 2012 when multiple businesses started to adopt bitcoin, including but not limited to black markets such as Silk Road. The period between 2013 and 2016 saw a lot of growth and speculation around Bitcoin. In late 2017, bitcoin’s value reached its highest. Since then, the value of bitcoin has dropped due to several reasons including countries like China banning cryptocurrency, certain hacks from cryptocurrency exchanges, etc.
Bitcoin users can use bitcoin to sell and buy products and services, transmit money and even extend loans. Bitcoin is a legitimate currency as it has a finite supply of 21 million bitcoins which makes it scarce and consequently, valuable.
Bitcoin works in association with three important factors and these are decentralization, cryptography and supply & demand. This is how it brings them all together:
A limited number of bitcoins exist in the cryptocurrency market (supply and demand). One can buy a
bitcoin using money and then using that bitcoin can make encrypted, secure
payments for a good, service or can even extend a loan (encryption). One can sell goods or services in exchange for
receiving bitcoins. Every single transaction made through a bitcoin is recorded
in a ledger available with everyone, thus making the entire process
decentralized and easy to track (decentralization).
Another way to acquire a bitcoin is through mining. While bitcoin mining was
started individually, now it is done by huge groups of people who then divide
the amount earned. Bitcoin mining has become harder with time but remains to be
a lucrative activity.
In summation, the world of blockchain, cryptography, and bitcoins has changed how many industries function. As technology advances further, it won’t just be changing the graph of many other industries (like gaming) but is also estimated that more and more organizations (public and private) will start to invest into it, making this environment more of their own (one country to do this already in Japan). Whichever way this goes, one thing is certain, this revolution is just the beginning.
Professional pipe smoker. After 25 Years of Pipe Puffin Full Time, I still don’t have a career. But I love my privacy and when I’m online I go full stealth mode while using my favorite VPN.