Introduction

I have been lingering around the crypto-currency space for just over a year now after being introduced to Ripple by my younger sibling. Ripple is kind of a guilty pleasure within this space due to the fact that at its core it is not deemed to be decentralized. Hardcore Bitcoin enthusiast will openly vilify you if you mention Ripple as a newbie, so my advice is to stay as far away from twitter for as long as possible or if you want a good laugh go on to  @Crypto Crunch twitter page and tell her you love XRP and TRX and sit back and watch her rant 😊 Oh for good measure tell her @Crypto Choe sent you……

While I can understand why people are passionate about currencies being completely decentralized, It has its pros and con. Personally, I have no allegiance to Bitcoin or Ripple,as long as any investment is making me some cash dollar I am happy to jump aboard both.

That said If you are thinking of getting involved in this space, understanding Bitcoin and its importance within the whole crypto community is vital if you want to invest in the long or short term.  It is without a doubt “the Don” currency and no matter which coin you chose to invest in, Bitcoins fluctuations will affect its price.

(Disclaimer, currently I am long on both XRP and BTC!!)

Who invented Bitcoin?

The truth –  nobody knows. It is a huge mystery that will more than likely never be solved but what we do know is that a fictitious software developer Satoshi Nakamoto first proposed this idea back during the financial crisis in 2008. It is believed that his Idea was to produce an alternative way to exchange goods, without using Fiat (Normal money like dollars or euros), independently of any central authority that could be transferred in a mathematically proven secure and verifiable manner using cryptography.

So What is Bitcoin?

For anyone who is techy enough, the 8 page whitepaper can be found here . It will not be the easiest paper to read or to follow but it is a good idea to at least browse through it. To sum it up in one do, I borrowed the fist sentence in the abstract.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution  [1]

For those who are not tech minded, It does not matter, I will simplify Bitcoin below for you

Main Parts of Bitcoin!

Bitcoin in itself has two main components.

  1. Bitcoin the token – essentially a piece of code that represents ownership of a digital asset
  2. Bitcoin the protocol – is a distributed network that maintains a ledger of balances of Bitcoin the token.

Okay that may sound confusing for now so to make it easy for now, think of Bitcoin the token in the same way you would think of money.

Money or “Fiat” can be used to buy goods, store wealth (if you are lucky enough) and can even be giving to someone as a present. Bitcoin the token can be used in a similar fashion but with some key differences. [2]

Now think of Bitcoin the protocol in the same way as you would think of a bank, Somewhere that records your Fiat balance and any financial transactions.  Again, there are some key differences which I hope will become more apparent in a bit.

 

So How does it work?

Bitcoin, is a single unit of the digital currency BTC and a satoshi is the smallest unit of bitcoin currency. In fact 1 sat is only one hundred millionth of a single bitcoin (0.00000001 BTC). Just like all  paper legal tender , Bitcoin by itself has no real value. The value is only agreed as we trade goods and services in exchange for BTC. [3]

To keep track of the amount of BTC that any person owns, the blockchain uses a digital file called a ledger to keep track of all Bitcoin Transactions. However, unlike the banks, these digital files are not owned or stored by one person or single entity rather is distributed across the globe on a network of private computers. Each computer of node makes up the infrastructure of the blockchain network and keeps a copy of the digital ledger file.This of course means that unlike your bank where only you can see your transaction, on the blockchain, anybody can see every transaction that is made. This is a whole topic by itself but if you are interested take a look at this blogpost by Michael Nielsen [4]

Does Bitcoin have any real value?

Fiat currencies have an unlimited supply and banks can print as much money as they want in an attempt to manipulate the value of the currency. Bitcoin on the other hand only has a total supply of 21 Million due to its algorithm and it is not possible to create any more. So in theory as the demand grows, the value must increase as the supply will stay the same. This purely depends on the demand for Bitcoin of course and it is also likely that the demand falls, in which case the value would decrease.

What does decentralized mean?

Have a quick look on some reddit forum and I am pretty sure you will hear the word decentralized. (By the way, Reddit like Twitter can be your enemy or your Friend but it is a good place to get information if you can filter out the nonsense.)

Ripple or XRP is having a hard time from hardcore Bitcoin fanatics as it is not deemed to be decentralized. But what does that even mean and does it even matter.

In a nutshell, it means no single institution controls the Bitcoin network. It is run by a private network of nodes that are spread out all over the world. This obviously has the advantage for individuals who do not want to have their money controlled by our banks or government, but the downside is that if something does go wrong with the network there is no one to call unlike the bank.[5]

Here is a nice video which will explain it in less than 5 minutes 😊

Personally, I love the idea of decentralization, Anything that takes the control away from the powers that be and gives it back to the people is a good idea in my opinion but it is unlikely that we will see an fully decentralized internet anytime soon and it will be the same with currency, You can bet your bottom bitcoin that they will not let go of the centralized model easily.

How do You perform transactions on the Blockchain?

In order to be able to perform transactions on the private network, a digital wallet is required to store and exchange your coins. Each wallet will/should be protected by cryptography hashing by using private and public keys.[6]

For example- if a message is encrypted with a particular public key, than only the owner of the paired private key will be able to encrypt and decrypt the message. When encrypting a transaction request with your wallet’s private key you are generating a digital signature that is used by blockchain computers to double check the source and the authenticity of the transaction. The digital signature is a string of text that is the result of a combination of your transaction request and your private key, therefore it cannot be used for other transactions. If you change a single character in the transaction request message the digital signature will change, so no potential attacker can change your transaction requests or alter the amount of Bitcoins you are sending

Here is a nice video that will explain Hashing very nicely

 

Are there alternatives to bitcoin.

Yes, In the crypto domain, there are literally thousands of different coins, tokens and protocols which is a bit of a minefield for anybody that is new to the space. My advice would be to look at the top 10 in the market and focus on these until you are comfortable in the space

 

What Resources do I use

below is a list of useful resources that I use on a daily basis

  1. https://coinmarketcap.com/   –  A place where you can view top 100 coins
  2. https://coinmarketcal.com/    – A place to check latest news for each coin
  3. https://blockchain.info/          – Info on Blockchain transactions
  4. https://www.coinbase.com/    – Exchange
  5. https://www.binance.com/    – Exchange
  6. https://www.tradingview.com/ – Charts

 

References

[1] https://www.bitcoin.com/bitcoin.pdf

[2] https://www.coindesk.com/information/what-is-bitcoin/

[3] https://en.bitcoin.it/wiki/Satoshi_(unit)

[4] http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/

[5] https://blockchain.wtf/what-the-faq/centralization-vs-decentralization/

[6] https://simple.wikipedia.org/wiki/Cryptographic_hash_function

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