Unlocking the Potential of Digital Currency: An Insightful Guide to Blockchain and Cryptocurrencies

Bitcoin and cryptocurrencies are among the hottest topics of recent years. Investors, traders, IT experts and entrepreneurs are all over this market. The number of search queries on cryptocurrency is off the charts. To find out what sparks such interest in bitcoin and the blockchain tech, let's first go a little back in time.

BITCOIN

The Development of Bitcoin: From Inception to Today 

In 2008, a person or group known as Satoshi Nakamoto released the white paper, a file describing the protocol and principles behind a peer-to-peer electronic cash system. According to Satoshi, the development had begun a year prior. In 2009, the mysterious author finished developing the protocol and published the software code.

Marc Andreessen, the creator of the first graphical internet browser, believes Bitcoin is a fundamental breakthrough in computer science, based on 20 years of cryptocurrency studies and 40 years of cryptography work by thousands of researchers around the world.

First Bitcoin Block

The first block with the first 50 bitcoins was generated on 3 January 2009. The first bitcoin transfer transaction occurred on 12 January 2009, as Satoshi Nakamoto sent 10 bitcoins to Hal Finney. Notably, Satoshi Nakamoto's true identity is still unknown, spurring a slew of conspiracy theories about it, seeing as bitcoin was launched just after the 2008 global financial crisis.

CHOOSE AN ANSWER

The creator of Bitcoin is:

1. Marc Andreessen

2. Satoshi Nakamoto

3. Hal Finney

Post your answer in comment box. 🗨️

Bitcoin and cryptocurrency as private currencies and the importance of capitalization 

Each block generates new bitcoins this is called issuance. Every mined block gives a reward to the miner who generates it. We will go deeper about the mining mechanism in other lessons. The network algorithm also includes halving, a mechanism for reducing the block subsidy. The subsidy is halved every 3-4 years and currently stands at 6.25 bitcoins per block.

Twelve years after the launch, as of early 2022 more than 90% of all bitcoins have been mined. The supply limit of bitcoins is 21,000,000. This limit is set in the code (algorithm) and cannot be changed by any controlling authority. Of the approximately 19 million bitcoins that exist at the moment, some are thought to be lost forever.

Bitcoin has laid the foundation for what is known as a decentralized financial system. This Means that there is no specific person, company, or government that controls the principles of the bitcoin electronic cash system. Anyone with a computer or smartphone and internet access can join the Bitcoin network.

In a centralized financial system, governments issue money and you have to open a bank account to transfer funds. The decentralized system is built on the principle of unconditional access. Centralized state currencies also involve the ability to control the issuance of new money. This is not possible in the Bitcoin blockchain network.

Decentralized finance can also be compared to 'private currencies' which can be issued by companies, municipalities, regions, individuals, etc. In 1933, there were about 400 scripts, or private currencies, in circulation in the United States. Bitcoin and cryptocurrencies reinvented the concept of private currency.

The basis of any value is its credibility level how many people consider something to be valuable. Many people compare Bitcoin to gold given its limited nature and the miners must bear its production costs. To some extent, Bitcoin value comes from the need to mine it.

The value is then confirmed by the capability to exchange the currency for other valuables assets. An amusing event happened in 2010 that has become legendary when Laszlo Heinitz bought a pizza for 10,000 bitcoins. This amount of coins would be worth hundreds of millions of dollars today.
Also in 2010, the first cryptocurrency exchanges emerged where bitcoin could be bought and sold for dollars.

There are now thousands of different cryptocurrencies in the world. Some of these are based on their own blockchain networks, but most are tokens. Tokens are crypto assets that do not have their own blockchain but work on top of other networks. We will cover this issue in more detail later in the course. Almost anyone, even without technical skills, can issue their own cryptocurrency.

The capitalization of any cryptocurrency is a fairly important indicator. It reflects the value of all the coins in circulation, including the balances on all user wallets, exchanges and so on. Capitalization is often used to compare cryptocurrencies. Market capitalization is the product of the circulating supply of coins and their current price.

Cryptocurrencies and the Fast-Paced Technological Development 

The total value of cryptocurrencies (the capitalization of the entire crypto market) is measured in trillions of dollars. Cryptocurrencies are risky assets, just like any volatile financial instrument. In the case of cryptocurrencies, you should also bear in mind the technical features of blockchain technology, as well as the huge variety of existing coins, tokens, protocols and networks.

But we need to get our head around all this the pace of technological development is very fast. In addition to simple payments and cryptocurrency transfers, lots of new industries have emerged in the last few years: DeFi (decentralized finance), NFT (non-fungible tokens),
DAO (decentralized autonomous organizations) and many more. We will observe them in future lessons, stay tuned.

ETF that own Bitcoin 

Grayscale Bitcoin Trust 

SYMBOL	GBTC:OTCMKTS
BTC	643,572
VALUE	$14,417,866,287
%	3.065%

CoinShares/XBT Provider

SYMBOL	XBTE:NADQ
BTC	48466
VALUE	$1,085,226,924
%	0.231%

Purpose Bitcoin ETF 

SYMBOL	BTCC:TSX
BTC	25,284
VALUE	$566,146,939
%	0.1%

 3iQ CoinShares Bitcoin ETF

SYMBOL	BTCQ:TSX
BTC	21,237
VALUE	$475,528,498
%	0.10%

ETC Group Bitcoin ETP

SYMBOL	BTC:XETRA
BTC	17,976
VALUE	$402,509,784
%	0.08%

3iQ The Bitcoin Fund

SYMBOL	QBTCBV:TSX
BTC	13,000
VALUE	$291,089,630
%	0.06%

Countries & Governments that own Bitcoin 

COUNTRY	CHINA
BTC	194,000
VALUE	$4,343,952,940
%	0.92%

COUNTRY	FINLAND
BTC	1,981
VALUE	$44,357,581
%	0.00%

COUNTRY	Georgia(govt)
BTC	66
VALUE	$1,477,840
%	0.009%

COUNTRY	EI Salvador
BTC	2,381
VALUE	$53,314,185
%	0.01%

Public companies that own Bitcoins 

COMPANY	MICROSTRATEGY
BTC	132,500
VALUE	$2,966,875,075
%	0.63%

COMPANY	TESLA
BTC	10,725
VALUE	$240,148,945
%	0.05%

COMPANY	Voyager Digitel LTD
BTC	12,260
VALUE	$274,519,913
%	0.05%

COMPANY	HUT 8 MINING CORP
BTC	9,086
VALUE	$203,449,260
%	0.04%

COMPANY	COINBASE GLOBAL, INC
BTC	9,000
VALUE	$201,523,59
%	0.043%

  

COMPANY	MARATHON DIGITAL HOLDINGS INC
BTC	8,090
VALUE	$181,147,316
%	0.03%

COMPANY	MARATHON DIGITAL HOLDINGS INC
BTC	8,090
VALUE	$181,147,316
%	0.03%

COMPANY	BLOCK,INC
BTC	8,027
VALUE	$179,736,651
%	0.039%

KNOW BY HEART 

✅ Decentralized financial system looks like the next big thing

✅ Bitcoin has its value because of many people consider it's, valuable 

✅ As the world move forward, the cryptocurrency industry is rapidly evolving

How Blockchains Works 

Blockchain is a continuous chain of blocks containing information and arranged according to certain rules. The link between the blocks is ensured not only by numbering but also by the fact that each block contains its own hash value and the hash value of the previous block. Changing any data in a block will change its hash value.

Blockchains

There is also a simpler definition. Blockchain is a technology for storing, processing and transferring data and values. Data can be stored in a simple database. Blockchain uses a distributed database stored on multiple computers.

A change in the database occurs for all participants of a particulars blockchain. It will only happen if they all agree to the changes and reach a 'consensus'. Fully automatically. The term Blockchain first appeared as the name of a database implemented in the Bitcoin system, since then, blockchain has more commonly been identified as a ledger for cryptocurrency transactions.

It is important to focus on the hash values (hashes) of the block. A hash is the result of encrypting data. It's helpful to think of it as compressing or packing a tent in a bag. So, the hash is a derivative of all the information contained in the block. There are different encryption standards for hash values, such as SHA256.

It is important to understand that changing just one letter in a book will result in that book's hash diverging from the original beyond recognition. So, the first block has a hash. The second block also has a hash containing a reference to the previous hash (the hash of the first block).

As a result, if you change just one byte of information in the first block, the hash of that block will be different. And since the second block hash contains the original hash of the first block, changing the first block without changing the second block is impossible. And so on.  This ensures the safety and integrity of data on the blockchain.

CHOOSE CORRECT ANSWER 

What concepts refer to data security on the blockchain network? 

1. Block 

2. Transaction 

3. Hash (hashing)

Post your answer in comment box.

Understanding the process of mining in Blockchain Technology 

Mining is the process for generating new blocks to build a chain, Miners perform hashing - encrypting data and searching for a valid block hash. These are complex mathematical operations that require significant computing power. Miners receive a subsidy for the mined block and the fees that users pay for their transactions. 

So, there are different transactions. How do transactions get in the block? Let's say you have a wallet containing 0.002 BTC. You want to transfer 0.001 BTC to a friend. 

When you perform such a transaction, it first sits in a Mempool - a waiting area for the transactions of all users on a given network.

Not all transactions can go into the next block since the size of the block is limited. It's like a ferry that not everyone can board at the same time. The queue is determined by the fee that users are willing to pay. Different blockchains have their own peculiarities, but in most cases, those who are willing to pay more will be the first to be included in the block. The rest will have to wait for the next block. 

A new Bitcoin block is generated approximately every 10-15 minutes. If the transaction sender sets the fee too low, they may have to wait several hours for their transaction to be included in the block and executed. This is not a sign of weakness - it's actually a mechanism that has helped Bitcoin handle its transaction volumes for more than 11 years. 

In addition to miners on the blockchain network, there are also nodes - computers that contain the entire blockchain history and a complete copy of all transaction. Nodes are not necessarily miners, and miners are not necessarily nodes. Not all mining machines keep the complete history of the blockchain. 

CHOOSE THE CORRECT ANSWER 

Who are blockchain miners?

1. Those who store the complete history of blockchain data

2. Those who mine new blocks and include user transaction in them 

3. Those who send transaction to others 

Post your answer in comment box.

Difference between Proof-of-work and proof-of-stake Consensus Mechanism in Blockchain Technology  

Many secure blockchain, such as Bitcoin, use the proof-of-work consensus mechanism that requires miners to solve complex hash matching problems to create blocks. These protocols consume a large amount of processing power and energy, which reduces bandwidth and increase network latency.

In addition to proof-of-work, there is proof-of-stake, or Pos for short. Examples of such networks include Tron and Ethereum 2.0, which is slated for release. In Pos networks, blocks are not generated by miners, but by validators or nodes. Validators keep the coins (tokens) of this blockchain network in their balance sheet and guarantee their integrity.

Integrity in this case means the willingness to from correct transactions not transferring coins that do not exist between addresses. If a validator breaks the rules, they will lose part of their stake, their coins on the node. The bigger the stake a particular validator has, the more often they will mine a new block, earn fees, etc.

In such proof-of-stake networks, security is more difficult to achieve - all of you need to control the network is to buy tokens and run a node. Security is purely economic protection. With Proof-of-work, you need someone to manufacture the equipment, then you have to buy it, install it, pay for the electricity, etc.

Know by heart

✅ Miners are solving complex math operations and earn fees for the mined blocks and transactions

✅ Transaction fee determines the speed of transaction execution

✅ Blockchains is extremely safe because of Pow and Pos mechanisms