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What is Bitcoin

Technology is changing and developing at a very rapid pace. The emergence of Blockchain is the biggest tech story of the last decade. Even though it has a reputation for obscurity, the concept behind it is straightforward and has the potential to disrupt industries. The Bitcoin Blockchain combines Bitcoin (BTC) and Blockchain technology. The technology aids in securely recording information and sharing it with participants in the network. Bitcoin is best described as the most popular cryptocurrency. It is said that the technology was created to facilitate the transfer of Bitcoins.   

Today Bitcoin is the most traded cryptocurrency and technology. Systems are being developed to simplify this trading and use Bitcoin to perform everyday transactions. The popularity of Bitcoin can be understood through the fact that they are expected to grow from £3.74 billion in 2020 to £15.77 billion by 2024.  

This blog explains what Bitcoin and Blockchain are and how they are related to one another. 

Table of Contents

1) Understanding Blockchain 

2) What is Bitcoin? 

3) How does Bitcoin Blockchain work? 

4) Benefits and Challenges of Bitcoin Blockchain 

5) Use cases of Bitcoin Blockchain 

6) Conclusion 

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Understanding Blockchain 
 

Understanding Blockchain
 

Blockchain is a system of recording information that is nearly impossible for anyone to change or hack. It is a technology that helps in securely sharing information between users. The data is stored in databases, while all transactions are recorded in an accounts book known as the ledger.   

Blockchain is a type of ‘distributed’ ledger. This means participants or Nodes of a public or private computer network possess the power to update the Blockchain. Each block within the chain or network consists of several transactions. Every time a new transaction takes place on the Blockchain, a copy of the record of the transaction is distributed to every participant’s ledger. This management of decentralised databased by multiple participants is described as Distributed Ledger Technology (DLT).   

Stuart Haber and W. Scott Stornetta are credited with giving the concept of a cryptographically secured chain of blocks - ‘Blockchain’ in 1991. However, the peer-to-peer network gained popularity with the introduction of Bitcoin in 2008 by Satoshi Nakamoto. 

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What is Bitcoin? 

Bitcoin is the world’s first cryptocurrency. It allows people to directly and securely send digital money using the internet. To send digital money, BTC relies on a decentralised protocol, cryptography and a system to achieve global consensus on public ledgers updated periodically. Bitcoin’s Proof-of-Work (PoW) system is used for authenticating all transactions on a decentralised network, a Blockchain. Users who validate these transactions using their computers to solve complex mathematical problems are rewarded with Bitcoins.   

There are three main characteristics of Bitcoin:  

1) Independent existence from any government or financial institutions,  

2) It can be transferred to anyone in the world without involving any centralised intermediary, and  

3) Has a monetary policy that cannot be changed  

Unlike traditional currency, Bitcoins are not dependent on any centralised entities such as governments and banks. Users can exchange the value of Bitcoins with one another through a peer-to-peer network. The Bitcoin network is open to all, meaning that anyone with a computer and an internet connection can connect and participate without restriction. It is also open-source, enabling anyone to view or share the source code on which Bitcoin has been developed. 

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How does Bitcoin Blockchain Work? 

There are three components to Bitcoin. They all combine to form a decentralised payment system. The components are 

a) The Bitcoin network 

b) Bitcoin (BTC), the native currency of the Bitcoin network 

c) The Bitcoin Blockchain 
 

How does Bitcoin Blockchain work


Bitcoin works on a peer-to-peer network in which users join to share Bitcoin. However, they enter the network because they do not want the intermediation of any third party to perform and validate the transactions. The users can connect their computers directly to this network and download the public ledger that contains historical details of all transactions.   

These public ledgers, also known as DLTs, use Blockchain technology to store and verify the cryptocurrency in a transparent and immutable manner. Users also rely on the Bitcoin Blockchain Explorer to use the Bitcoin network. It is software providing an online interface to search a Blockchain and retrieve information that the Blockchain contains.   

Users can join the peer-to-peer network and request a transaction in return for some activity or task they have completed. This request is broadcasted on the network consisting of other users' nodes and computers. Next, this network of nodes authenticates the transaction.   

Once the transaction verification is processed, it is merged with other transactions, creating a new block of data for the ledger. This new block is then added to the already existing Blockchain. The critical thing to remember here is that the new block is added so that it cannot be changed later, making the activity immutable. Lastly, the transaction requested by the original user is said to have been completed.   

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Benefits and Challenges of Bitcoin Blockchain
 

Benefits of Bitcoins


Bitcoin is the world’s largest cryptocurrency. It was also the first cryptocurrency. Following are some of the key benefits and challenges of Bitcoin Blockchain.  

Benefits 

The following are the benefits of Bitcoins: 

a) Immutability – Once a transaction or data has been uploaded on Blockchain, it cannot be changed, replaced, or erased. This makes Bitcoin's peer-to-peer network immutable. The key feature of Blockchain is that it prevents and eliminates any chances of tampering with data within the network. The traditional forms of data follow the CRUD (Create, Read, Update, and Delete) model that has room for easy erasing and replacing some parts of the data. However, this is not the case with Blockchain. Any data or transaction, once uploaded, cannot be deleted or altered.

b) Transparency – The Blockchain's decentralised feature becomes one of the most significant benefits. Any network member can authenticate data recorded and stored on the Blockchain. With this feature, the people, i.e., the users, can build their trust in the network. 

c) Traceability  –  Another key benefit of Bitcoins is that they can be traced. Any activity on the Blockchain tends to create an audit trail that cannot be reversed. This way, any activity and changes in data on the peer-to-peer network can be easily traced. All users in the network can track and monitor the changes and retrieve such information at any given time. 

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Challenges 

The following are the challenges of Bitcoins:

a) Scalability – The most significant challenge associated with the Blockchain is that these networks find it difficult to manage many users at a given time. The main reason behind this is that various complex algorithms are involved in processing even a single transaction. As the number of people using Blockchains increases, the overall processing speed has also been affected.

b) Difficult to understand and adopt – A layperson may find it very hard to understand various aspects of Bitcoin and Blockchains. Before using this technology, the user must spend time reading and understanding it, which is time-consuming and complicated. Users have to explore principles of encryption and distributed ledger. In addition, very few financial institutions are providing any support to make Bitcoin another mode of payment, and due to this reason, adopting Bitcoin and Blockchain is turning out to be complicated.

c) Privacy – The fact that everyone can view information on the public ledgers is also a big challenge for Blockchain. This feature can become a liability if used in susceptible environments. Ledgers need to be modified in a way that they give restricted access to some users so that they can view delicate information. This will be a step in adopting Blockchain on a broad scale.
  

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Conclusion

Bitcoin and Blockchain have become very popular and common in recent times. They are fast becoming a new means of sharing data between users. Several factors have played a vital role in making both popular among the people. Decentralisation, transparency, and security are some of such essential features. Several challenges need to be addressed to enhance the capability and functionality of Blockchain. By taking such measures, the overall scope of use of Bitcoins and peer-to-peer networks can be improved significantly. With this blog, we hope you have understood the relationship between Bitcoin and Blockchain and their benefits and challenges.

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