By Danny Scott, CEO at CoinCorner
Bitcoin and Blockchain – I’m sure most people have heard of both over the last few years, but many are still not quite sure what these are.
A little reminiscent of the ‘Internet’, ‘The Cloud’ or even more recently the ‘Internet of Things’, people hear new terms like these and even use them in everyday conversations, but in the background are often quietly confused about what they are or even what they actually do. As with anything new, it can be difficult to break the jargon down and not only explain what it is, but how it’s used in the real world. After 5 years of working in this exciting and fast-paced industry, here are a few key Bitcoin buzzwords worth understanding!
Where does Bitcoin’s story begin?
A little over 9 years ago Bitcoin was launched in a 9-page white paper by Satoshi Nakamoto (a publicly mysterious person or group) as a platform for trustless peer-to-peer transacting. Peer-to-peer simply means that transactions can take place between computers using code, rather than through third-party companies.
Nakamoto concluded in the white paper that what was being proposed was ‘a peer-to-peer network using proof-of-work to record a public history of transactions that quickly bec[ame] computationally impractical for an attacker to change if honest nodes control[led] a majority of CPU power’. Pretty technical stuff, right?
Essentially, what Nakamoto did was to very cleverly piece together a variety of concepts and technologies to create what we refer to as Bitcoin. In this article, I’ll highlight the different parts of ‘Bitcoin’ by breaking it down to explain how each piece fits together. These comprise of ‘Digital Currency’, ‘Code’, ‘Nodes’, ‘Miners’, ‘Blockchain’,and the ‘Internet’!
At the top level we have ‘bitcoin’, the Digital Currency. This is the part of the puzzle that has an actual value, with today’s price currently sitting at $6,709. At CoinCorner we offer services that enable consumers to buy and sell bitcoin.
Next up is the Code that actually runs Bitcoin – let’s call this the law. The code is often referred to as the ‘Bitcoin Protocol’. It’s open source which means that anyone in the world with Internet access can see the code and help to develop the protocol. In being set up like this, no single authority or company owns or manages Bitcoin.
Nodes are people like you and me who run software on a computer. This software connects the whole Bitcoin network together and essentially allowing each computer to talk to others in the network. Each node connects to other nodes and enables transactions to be passed around the network.
A Miner is a computer run by a real person or company, and it’s sole task is to process Bitcoin transactions and confirm them. The mining process involves running a node on a computer which helps the miner to find all of the transactions on the network and ‘mine’ (or simply add them) them into a block on the Blockchain. Miners are rewarded with bitcoin as a thank you for their efforts, which comes from transaction fees paid by the user and as a reward from the ‘code’.
The blockchain is a database or ledger of all transactions that have been processed (confirmed) on the network by the miners. Bitcoin’s blockchain cannot be edited or deleted, only added to. Nodes around the world will keep a record of the blockchain (all the Bitcoin transactions to ever occur) on their computer. This means that the blockchain is distributed on thousands of computers worldwide – it has no one point of failure which removes the risk of the network going down.
This may seem like an obvious one, but all of this couldn’t be completed without the Internet. I feel that this is one under-appreciated piece of the puzzle! The internet facilitates the connection of all of the nodes and the passing of data around.
Bitcoin in Summary
This is a high-level overview of the different parts that make up Bitcoin, which shows that each part is as important as the next. At present, the Blockchain is being hyped as a revolutionary technology (which it is to an extent), but in reality, it’s actually only one piece of the Bitcoin puzzle and is no more important than the others mentioned here. If you took away any one of the above parts in this current scenario, Bitcoin wouldn’t work or have survived this long.