Bitcoin

The beginning of Cryptocurrency ( Scam or Not Scam)

With traditional financial education, we have very limited ways to do whatever we want or we are allowed with our wealth. Because we have only 2 options for any kind of wealth swap.

Option 1 – direct swap of wealth

For example, if I would have fire wood and I needed cooking oil , I needed to find a person or business, determine the quantity, and make a deal.

It’s the same with cash. If I need cooking oil, I need to find a person/business, determine the quantity, and make the deal.

Keep in mind that cash has no real value , it’s a combination o paper/plastic/ink or a combination of metals that are very cheap, in coins case.

Option 2 – indirect swap of wealth

It’s the most common way this days (2023), because the people or companies making deals don’t need to be in the same location.

And here all the problems start, because a third party needs to be involved like a bank, postal service, courier… etc, so we need to trust them and the insurance policy too that they will do what we asked them to do with our wealth for a small fee, of course.

Well, not every time third parties will do that , just becouse is not in they’re interest, or they are not allowed by government to do it.

In other words if we use a third party to buy, sell, swap wealth we are exposing ourself at high risk, for example our wealth can be seazed, stolen, used in different ways for they’re benefits…etc. examples are pension funds, loans, credit accounts, savings accounts and many more.

All this information it may start you thinking that the whol financial system is a high risk service and made up for mass manipulation, which is more or less in my own opinion true.

So with this information known , let’s dive into cryptocurrency.

So let’s star first with cryptocurrency which is a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.

In other words decentralized cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation. ( yeey no risks of third parties).

The beginning of cryptocurrency.

Well everything started in 31 of October 2008 with a programmer or group of programmers under the pseudonym Satoshi Nakamoto, whose identity never been verified.

Satoshi Nakamoto launched the software program, an online network which enables the transfer of value between individual users without the need of an intermediary.

This software program has a built-in currency also called (bitcoin – small b, thicker simbol – btc) which allows the users to transfer value using btc on the (Bitcoin – capital B) network.

Bitcoin is the first cryptocurrency created and is now the most valuable and well known.

True value of cryptocurrency – BTC

  Using this cryptocurrency for transactions we can be anywhere at any time and still make the transaction happen within minutes. And no authorities or third parties needs to be involved also they can’t seize or use your wealth in their benefits.

The most important and difficult detail about the network

How to create a system which allows transactions over the Internet but doesn’t have some form of centralized authority keeping track of everything??? How do you cut financial institutions out of the equation and simpli allow anyone to transact pear to pear.

It’s very difficult because Satoshi needed to make sure everyone is spending only what they have. So he needed to engineer somthing thet doesn’t require trust without expecting people to be honest.

In traditional financial system there ways such as cash is hard to forge and if so you are punished even of trying, and authoritys and banks are tracking every tipe of use of your digital money.

Above all you need to trust the central bank who issues the currency, that will not print more of it and devaluate the currency.

Remember in the intro about traditional financial system?

About mass manipulation?

Satoshi Nakamoto figured out the answer to this problem.

So instead someone kind of entity keeping a record of transactions with the power of doing pretty much anything with our wealth.

So rather then having a centralized authority keeping track of everything, Bitcoin is engineered so that anyone running a node on its network keeps a record of all transactions and balances.

A node is a computer which has downloaded and it’s running the Bitcoin software. So it’s decentralized.

So every transactions that takes place on the network gets checked and validated by the nodes, every few minutes the records of this validators transactions are grouped together into a block and this blocks form together a chain called blockchain. Each block is linked with the one before it using an encoding proces known as hashing.

So why this way is so secure?

In order to someone to alter the information in one block, he needs to alter the information in all the blocks after it, in which case the network will notice that something fishy is going on and reject the change.

So it’s impossible to edit the record.

How the network is maintained without an authority doing it ?

So as we know the network is made by nodes, and running a node is a basic process and it can be done on a computer running the Bitcoin software. It doesn’t require a vast amount of processing power, just enough storage so the node in question can store Bitcoin full transaction history.

And the more nodes they are , the more “bookkeepers ” they are overseeing the network.

The second type of nodes – the miners

  Miners are related to the wat Bitcoin is designed. The number of units of BTC the software will issue over time is fixed at 21.000.000. No more than this will ever exist. No one can modify this amount like in traditional financial system. So this amount of 21.000.000. BTC is not released all at once, instead the releasing of BTC’s are provided by the program Satoshi wrote. Every time a block is added to the blockchain a number of BTC is released as a reward. This block reward diminishes over time slowing BTC issuance and inflation rate. All the miners compete for this block rewards. All this process keeping the network secure and honest is called Proof of Work.  

How the miners work?

All the miners compeet to add to the blockchain the latest block and claim the block reword ( BTC). To do so essentialy they need to be the first one to guess a ramdom number formed by digits, a very long number. To guess such a number they need alot of guesses so alot of computing power. That means they uses alot of energy, and that’s why alot of people think that proof of work is bad for the environment, well will not be bad if it will come frome renewable sources.

Fundamental security and running principle

One of the fundamental ways that Bitcoin functions as the most secure payment method on Earth, is of the use of puplic key encryption which has 3 components that work together and allows transactions.

The firs component is a private key, randomly generated for a new user by the Bitcoin software. This private key needs to be kept secured and secret by the user.

Without it you can’t access your BTC and if someone else gets hold of it it can have access to your BTC and steal it or sell it or transfer it.

This private key is used to generate a public key that can be used to generate the third component which is you public adress wich is used to receive BTC. The public adress can be represented as a combination of letters and numbers or a QR Code.

How do I interact with my BTC?

The software program that enables the interaction is called Bitcoin Wallet.

The Bitcoin Wallet has 2 main functions such as holding your private keys and holding your adress. This will allow you to interact with the Bitcoin network to send and receive BTC.

Of course this are the core functions of a Wallet.

This days 2023, Cryptocurrency Wallets has many other functions too.

How we can get BTC?

  Well true our public receiving address we can receive BTC from another wallet or some wallets allows buying BTC with fiat currency. Is another way that requires an exchange like Kraken or Binance to buy BTC with fiat currency which lands into you account wallet hosted by that exchange. So that means hosting with a third party and it is a higher risk because they holds your private keys. To remove this risk you can transfer your BTC from your accounts wallet hosted by the exchange to your own wallet.

Important!!! If you don’t have custody of your private keys you don’t have custody of BTC. So remember to only hold your cryptocurrency wealth in your own wallet in which case you are in custody of your private keys and no one can access your crypto.