Cryptocurrencies are an application of Block-chain.The existence of cryptocurrency is based on the technology of blockchain.
Cryptocurrency is like a token. It is very similar to a digital token in gift voucher with no physical transaction and instead, using only a submission code as in e-purchase .
In this article, we will use Bitcoin (BTC), to discuss the processes used in Crypto-currencies and tips on how to buy unique code in BTC. and utilise it. The best part of all these transactions is, by using the Blockchain concept, we can trace the trail of the BTC from its origin to usage.
We can define it as,
The Internet of Money,
P2P money,
It eliminates regulators (government or central bank) and all third parties.
There is no cost or delay,
Bitcoin accounts are random QR codes of 160bits,
It rides on public cryptography and
It travels with a flex of a second.
The process is unique, easy, and trackable.....
It works as a digital wallet. Let's use this example to understand the procedure followed for buying or using BTC.
Let’s say Mr. ABC wants to buy BTC, and he finds a seller, Mr. XYZ. The transaction will proceed as described under:
A. To start with Mr. ABC downloads ‘Wallet’.
B. Now, Mr. ABC wants to buy BTC, which is purchased on the internet by transfer of ‘physical’ money.
C. To transfer BTC, Mr. XYZ will need the QR code of the recipient (Mr. ABC).
D. Once Mr. ABC provides his QR code, Mr. XYZ will transfer BTC to Mr. ABC’s wallet.
E. The wallet of both transferor and transferee is updated, with-in seconds.
F. This completes the transaction using software runs on various computers.
With each transaction, a key is created and all the users of ‘blockchain’ get instant update. It means all the users of BTC will be aware of any change.
The process goes like this: when anyone buys BTC a ‘key’ was held by other users and with the sale, another ‘key’ is created. With this, all the systems are notified and thus creating a ‘chain’. This authenticity is because of ‘Block-chain’. This also proves that cryptocurrency is only one of the applications of ‘Blockchain’.
Bitcoin Mining
Mining can be defined as ‘work of verifying the legitimacy of transactions'. It means a Bitcoin miner earns cryptocurrency investing no money. This can also be considered a reward for a painstaking exercise of solving a puzzle of hashtags and by doing so they minting currency. This is the only way to release any cryptocurrency into circulation.
Each time, a miner completes a ‘block’ he earns 6.25 bitcoin. These rewards are reduced by half every four years. So when the bitcoin was first mined in the Year 2009, the value was 50 BTC (for mining one block), In the Year 2012, the reward was reduced to 25 BTC. After four years, it again reduced to 12.5 BTC yet again in the year 2016 and from November 2020, the reward is only 6.25 BTC.
Still not bad, considering the present value of over $50k per BTC, it values over $300k, making a substantial reward. However, to get this reward, one may need a stroke of extreme luck. The reason is that you will then have to be the first miner to arrive at the correct answer’. The first miner comes up with a 16 digit number(hexadecimal) that is less than or equal to the target hashtag.
How does the value of BTC increase or decrease?
The value changes with the increase in demand and supply. When BTC was launched in 2009, the supply cap was stipulated by the developers at 21million. As of now, the current supply is around 18million. With the mining rate decreasing to half every four years (as of now it is 6.25 BTC per block completed), the supply should reach 19million by the year 2022. But each day the demand is increasing which is in turn fuelling the price.
SATOSHI....0.00000001
An important fact about BTC is it is divisible by 8 decimal points which makes the smallest unit equal to 0.00000001 BTC. These units are called ‘Satoshi’. It was named after the inventor Satoshi Nakamoto.
If the prices continue gain over time, then the users even with a tiny fraction will transact.
Its digital money is so durable and based on a decentralised blockchain ledger system, making thus difficult to counterfeit under ‘double spend’. Although it is not common, spending twice can occur if the digital information is reproduced by an individual with excellent computing power and the one who understands the network.
We should always remember that since Bitcoin is non-regulated by statutory bodies, utmost care is needed before deciding to purchase it. Bitcoin value is not backed by any commodity or metal, and its value is driven by the interest of users.
This article is to give an insight into the cryptocurrency world and is not inciting readers of this article to invest or make a purchase.
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