Part One: Bitcoin and blockchain technology, the basics
So, you're interested in trading cryptocurrencies and you're finding it confusing? Don't worry, you're not alone it is confusing. Getting started is can be very daunting as there are a lot of technical terms you may not be familiar with and services and all sorts of other things you may not have heard before. Don't worry, this is intended as a guide for newcomers to the crypto-ecosystem who want to understand and to get involved with what is going on.
Lets start with the basics. Bitcoin. The best thing you can do to start off with is to have a look a the Bitcoin whitepaper, a whitepaper is concise guide to a new technology that explains how it works and what it does. The original Bitcoin Whitepaper can be found here: https://bitcoin.org/bitcoin.pdf
You don't need to fully understand it right away, it is quite technical but you would do yourself a big favor to understand the basics of the technology you want to invest in. Wise investment is based on research and if you are not willing to research something you should probably avoid investing in it.
The best thing you can do to start off is to look at some whitepapers and get the general jist of what they are proposing, don't worry about getting too bogged down in the technicals right away, just familiarize yourself with some common terms and concepts. Google is your friend here, use it.
The most important part of Bitcoin is its blockchain, this is the main innovation that it introduced back in 2009.. All cryptocurrencies are based on blockchain technology. A blockchain is a digital ledger that records all transactions in chronological order within a specific period of time. There is one “active” block at a time and this is where all transactions are recorded. Blocks are issued one by one with a more or less evenly spaced time period between them. Bitcoin releases a new block roughly every 10 minutes. In these 10 minute intervals all transactions on the network are entered into the current active block where they are processed, or confirmed, by the miners of that blockchain. Once all of the miners see those transactions and all agree upon them that they are legitimate (consensus) they are stored irreversibly on the blockchain for everyone to see and analyze. This is the public ledger. Because all the miners of the network received and approved these transactions at the same time they cannot be disputed or edited.
Let's look at what happens when you send someone a Bitcoin.
Anne has 2 Bitcoins in her wallet, her wallet appears on the public ledger as having a balance of 2 Bitcoins, everyone can look up her balance and agree that she has 2 Bitcoins. Anne wants to send 1 Bitcoin to Bob, Bob is new to Bitcoin so he has a brand new wallet with a balance of 0. The most recent block on the chain records this and everyone can agree that Anne has 2 and Bob has 0 Bitcoins.
Anne uses her wallet to send a Bitcoin to Bob. She sends this Bitcoin to his wallet using his public key address. This transaction is then broadcast to the entire Bitcoin network to be processed and agreed upon by the miners. The miners take roughly 10 mins to process this transaction and all agree that it occurred. When Anne sends the Bitcoin she doesn't just send it to Bob like we do with cash, she broadcasts to the entire network that she is sending a Bitcoin to Bob, the entire network watches her send it and makes an open, undeletable public record of Anne sending 1 Bitcoin and Bob receiving 1 Bitcoin.
The key concepts to take home here are;
1) All transactions are publicly broadcast and agreed upon by the whole network before being confirmed.
2) Every transaction is public and can be inspected on the permanent blockchain
3) Then blockchain is processed by the miners, simultaneously across the whole network 4) Bitcoin, and all crypto currencies are secured by this massively parallel consensus created by mining.
5) After confirmation all transactions are permanent and cannot be altered.
6) Research, inform yourself as best as you can and don't rush into any investments you don't undertand.
That will do for now, Part two of of this series will deal with the basics of mining then after that we will get to actually start trading.
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