For newcomers to the crypto space, many terms are confusing and sometimes misleading. Some people are talking about blockchain technology and they are referring to Bitcoin, while others are talking about cryptocurrencies and they are referring to the blockchain. Although the terms are interrelated, duel pairs are not interchangeable. So, here we will introduce you to the basics of blockchain, cryptocurrencies, and Bitcoin.

Basic analogy

Just imagine:

  • A website is a special technology used to share information.
  • Search engines are the most popular and common method of using website technology.
  • In turn, Google is the most popular and well-known search engine.

And:

  • Blockchain is a special technology (data block) for recording information.
  • Cryptocurrency is one of the most popular and common ways to use blockchain technology.
  • Bitcoin, in turn, is one of the most popular cryptocurrencies.

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Blockchain: Concept

Most blockchains are designed as distributed and decentralized digital ledgers. Simply put, a blockchain is a digital ledger responsible for recording transaction records, and can also be compared to a digital version of a paper ledger.

More specifically, a blockchain is a linear chain of blocks connected and secured by cryptographic credentials. Blockchain technology can be applied to other activities that do not necessarily require financial operations. Meanwhile, in the context of cryptocurrencies, blocks will be responsible for the permanent record of confirmed transactions.

“Distributed” and “decentralized” refer to the way ledgers are structured and maintained. To understand the difference, consider some of the common centralized ledgers found in marketplaces, such as public records for home sales, bank records for ATM withdrawals, or eBay listings for items sold. In each of the above cases, only one organization controls the ledger, the government agency, the bank, and eBay. Another common factor is that these ledgers only have one copy of the general ledger, and everything else is just a backup, not an official record. Therefore, traditional ledgers are centralized because they are maintained by a single entity and usually only rely on a single database.

The blockchain is completely different, it is usually built as a distributed system, and the role it plays is also a decentralized ledger. This means that there is no single copy of the ledger (distributed) and is not controlled by a single individual (decentralized). Simply put, every user who decides to join and participate in the maintenance of the blockchain network will hold a copy of the blockchain data, this copy will usually be synchronized with other users’ copies, and all the latest transaction data will also be updated into the copy.

In other words, a distributed system is maintained by users who are distributed all over the world working together. These network users are called nodes, and these nodes will verify and confirm transactions according to the rules of the system. Thus, power becomes decentralized (there is no centralization).

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Blockchain: Principles

A blockchain gets its name from the way its records are grouped: a linear chain of interconnected blocks. Essentially, a block is a piece of data that contains a list of recent transactions (like a printed record). These blocks and transactions are publicly visible, but cannot be changed (like keeping every page of records in a glass box). As new blocks are continuously added to the blockchain, the linked blocks form a continuous record (just like a physical ledger with many pages of records). This is a very simple analogy, but its formation is much more complicated than that.

The main reason blockchains are difficult to tamper with is that all blocks are linked to each other and protected by encrypted credentials. To generate new blocks, network participants perform an expensive and computationally intensive process known as mining. The job of miners is to validate transactions and group them into newly generated blocks, which are then added to the blockchain (if the conditions are met). Miners will also be responsible for introducing new tokens into the system, those issued as rewards for work.
Each confirmed block is linked to the previous block next to it. The beauty of this set is that when a new block is added to the blockchain, the data in the block cannot be changed, because the data in the block is protected by an encrypted certificate, and the encrypted certificate It is expensive to produce and difficult to undo.

In summary, a blockchain is a chain of interlinked data blocks, and the blocks in it will follow the link in chronological order and be protected by encrypted credentials.

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Cryptocurrency

Simply put, a cryptocurrency is a digital form of money that will serve as a medium for users to exchange funds in a distributed network. Unlike traditional banking systems, cryptocurrency transactions can be tracked through a public digital ledger (blockchain) and can take place directly between participants (P2P) without any intermediaries.
And “Crypto” refers to those cryptographic technologies that secure the economic system, maintain the creation of new cryptocurrencies, and ensure smooth transaction verification.

Not all cryptocurrencies are mineable, but most, like Bitcoin, rely on the mining process in order to have a slow and controlled increase in circulating supply. As a result, mining is the only way to create new units of cryptocurrency without the risk of inflation seen in traditional fiat currencies.

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Bitcoin

Bitcoin is not only the first cryptocurrency in the world, but it is also the most well-known cryptocurrency in the market. Bitcoin was created in 2009 by a developer or group of developers under the pseudonym Satoshi Nakamoto. The main idea of ​​creating Bitcoin is to build an independent and decentralized electronic payment system based on digital proof and cryptography.

Although Bitcoin is best known, it is not the only one. There are many other cryptocurrencies in the market, each with its own unique properties and mechanics. Also, not all cryptocurrencies have their own blockchain. Some cryptocurrencies are created on existing blockchains, while others are created incrementally from scratch.

Like most cryptocurrencies, Bitcoin has a finite supply, which means that no new coins are created in the system after the maximum supply is reached. The maximum supply of Bitcoin is 21 million. Usually, the total supply of a cryptocurrency is announced after it is created.

Because the Bitcoin protocol is open source, anyone can view or copy its code. And many developers around the world have contributed to the development of this project.

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