A Guide On How To Understand Bitcoin And Cryptocurrency?
Even though Bitcoin is one of the most searched for terms (according to Google), it is a very technical subject for a lot of people and can get overly technical for non geeks. However, there are now hundreds of cryptocurrencies and more and more people are starting to want to get to know how they work possibly driven by a dis trust of bankers, which is a whole different discussion.
It is difficult to get a lay man’s explanation without having to use technical terms such as “secret keys”, “digital keys”, “digital wallet” and “cryptocurrency” so I will do my best to keep things as straight forward as I possibly can.
The Concept of Fiat money i.e. paper currency, was formulated to make it simpler for people to make an exchange for goods or services to replace bartering, as this would be limited to an exchange between two willing parties at best, whereas money allows you to provide your service or goods, then purchase whatever service or goods you require from another or others.
Therefore, I would argue that Bitcoin is the 21st Century equivalent to bartering, in that it works as an exchange for goods or services directly between two willing parties. Bartering had to be based on each promise and trust, to provide and deliver the promised goods or service.
Today with Bitcoin or any other cryptocurrency each party would need a unique file or unique key to exchange the agreed value between each other.
By having a unique key or file it becomes easier to keep a record on each transaction. However, this too comes with problems.
Now, bartering is the simple exchange of skills or goods as I have already stated, the modern equivalent, or bitcoin is susceptible to security breaches, i.e. theft or hacking of files, this is where a “cryptocurrency wallet” comes into the equation to secure your transactions.
Basically you need a secure location for your cryptocurrency/bitcoin purchases and holdings. This is where the need for a hardware wallet comes from.
So now that you have written down/recorded which address holds which amount of Bitcoins and then updated every time a transaction is made, the file is known as “The blockchain” – and it keeps a record of all transactions made with bitcoin.
The next issue is to ensure our files remain unique.
I will be dealing this in my next article.