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Key Concepts in Bitcoin
2022-05-15 22:06:11

Key Concepts in Bitcoin

There are many countries in this world and each country uses their currency for trading purpose. Some of them use the dollar, pound, euro, yen & rupee etc. These currencies are physically present but not digitally as cryptocurrencies. These currencies may present in your wallet. On the other hand, Bitcoin is a cryptocurrency which is not physically present but can be used for trading purposes. Some cryptocurrencies are decentralized digital currencies. One among them is Bitcoin, which can be sent from or transferred from one user to another user & this process uses a peer-to-peer network without any intermediates in the network. For verifying the transaction in the network nodes, it uses cryptography, after which the transaction is recorded in a ledger (public distributed ledger), which is called a Blockchain.

The cryptocurrencies were created in 2008 and were first used in 2009.

Bitcoin consists of the following four key concepts:

  • Distributed
  • Disintermediated
  • Decentralized
  • Trustless

Let us start with the first one -

Distributed

The whole Bitcoin network runs on a particular network of many distributed computers & they share the same workload. It consists of many distributed computers because it is always better to distribute the workload with multiple computers instead of doing all the work on a single centralized computer. In a distributed computer network, the workload is distributed across all the computers. There is no single point mistake or failure & thus, the distributed network becomes more reliable when compared to a single centralized computer.

Disintermediated

When someone sends money online over the internet, we require a third party to connect or link our bank, which will internally manage all the transactions. But in the case of Bitcoin, you don't require any third party to link the bank; in Bitcoin, you are doing the transactions directly to the other party over the network or internet. The network connection confirms that the transaction is valid and verifies if there was a true transfer between the two parties. & this concept or process is called Disintermediated.

Trustless

There is no need for any third party in Bitcoin & that's why it is Trustless; it doesn't require any bank to certify or verify the transaction process. In Bitcoin, it uses Distributed Trustless Consensus, which verifies all the nodes accept & agree that a transaction has taken place. This enables all the transactions that have taken place in the Bitcoin.

Decentralized

Decentralized means there is no central repository of data, no management in between overseeing what Bitcoin is doing & there is central control in Bitcoin. & because of this, there is no single point of failure or central point of failure. & that’s the reason Bitcoin is decentralized.

Some other features of Bitcoin that make it a unique asset class-

Censorship resistant

As we know, Bitcoin is decentralized, and Bitcoin is censorship resistant means it is not under any corporate or government entity. & this aspect makes Bitcoin very unique from the others.

But as we know, Bitcoin is decentralized, and the digital existence of Bitcoin means one can have access to the network, and this access cannot br restricted.

Hard Capped

Bitcoin ensures that it never crosses twenty-one million BTC. & this makes Bitcoin limited in supply. Every four years, there is a halving rule applicable in Bitcoin, which is why BTC is still valuable. This is why Bitcoin is called Hard Capped & this is a very important aspect that differentiates Bitcoin from others.

Immutable

Bitcoin is known as immutable because the blockchain tech used in Bitcoin is immutable. Every transaction done in Bitcoin is stored or collected in a block, and that block is linked to the earlier blocks of transactions.

Network Effects

As we know, Bitcoin's value is increasing daily and has become a mainstream investing asset. The ubiquity and value make Bitcoin even more valuable.

Bottom Line

Bitcoin's immutability, capped supply, network effect, decentralization & censorship-resistant make Bitcoin unique and set ahead of its class.