A guide on how to understand Bitcoin and cryptocurrency?
Although Bitcoin is one of the most searched terms (according to Google), it is a very technical topic for many people and can get too technical for non-geeks. However, now there are hundreds of cryptocurrencies and more and more people are starting to want to learn how they work, probably driven by a distrust of bankers, which is a completely different discussion.
It’s hard to get a layman’s explanation without having to use technical terms like “secret keys”, “digital keys”, “digital wallet” and “cryptocurrency”, so I’ll do my best to keep things as simple as possible the clearest I can.
The concept of fiat money, ie. paper currency, was formulated to make it easier for people to exchange for goods or services to replace barter, as this would be limited to an exchange between two willing parties at best, while money allows you to provide your service or goods, then purchase whatever service or good you need from another or others.
This is why I would say that Bitcoin is the 21st century equivalent of barter, as it works as an exchange of goods or services directly between two willing parties. Barter had to be based on every promise and trust to provide and deliver the promised goods or services.
Today with Bitcoin or any other cryptocurrency, each party will need a unique file or unique key to exchange the agreed upon value with each other.
By having a unique key or file, it becomes easier to maintain a record of each transaction. However, this also comes with problems.
Now, barter is the simple exchange of skills or goods, as I said before, the modern equivalent, or Bitcoin is vulnerable to security breaches, ie. theft or hacking of files, this is where a “cryptocurrency wallet” comes into the equation to protect 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, once you’ve recorded/recorded which address contains what 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 problem is to ensure that our files remain unique.
I will deal with this in my next article.