Since its groundbreaking introduction by Satoshi Nakamoto in a paper entitled: ‘Bitcoin: A Peer-to-Peer Electronic Cash System,’ on October 31, 2008, the term Bitcoin has nearly become a household name. Over the last nine years, this cryptocurrency has maintained nearly an upward trajectory – culminating in its price reaching $19,783.21 – a week before Christmas. During this period, it has been praised by many and vilified by a few. It has been grudgingly accepted by Wall Street – who introduced Bitcoin futures late last year, and rejected by many national governments like North Korea, India, and China. There is also an anecdotal evidence that, it has even made 18-year olds into millionaires while some have lost their retirement funds to its volatility. The Crypto lexicon has found some new terms, such as, Ethereum, Ripple, and Cryptonnaire that define various Alternate Coins and a Crypto Millionaire, respectively.
Evidently, an ‘idea,’ resulting in such spectacular monetized returns merits a closer look from the cryptocurrency traders, to use knowledge to make better investment/trading decisions. For example,
A prime objective of this five-part white paper is to dissect the Bitcoin myth, though more importantly it is to simplify the understanding of the underlying BCT.
In addition, an attendant objective is to draw the traders’ attention to several other investment opportunities in BCT technology, and ALTCOINS that yield equally spectacular returns.
Thus, this five part series is organized in a way such that a newcomer to Cryptocurrency Trading (NYSE:CCT) can gain an enhanced understanding of the Bitcoin myth – what drives it, and appreciation for the underlying disruptive BCT technology. Unquestionably, this technology is bound to change practically every aspect of the human life: business, finance, health, and medicine to name a few.
This discussion will be outlined in five parts:
- Bitcoin Myth and BCT, (Article Dated: 02/13/2018).
- Inner Workings of Blockchain Technology (BCT), (Topic of this Article)
- Cryptocurrency Transaction Logistics,
- Current Applications of BCT, and What Lies Ahead,
- How Can a Cryptocurrency Trader Leverage Knowledge of BCT.
Inner Workings of Block Chain Technology (BCT):
Block Chain Technology (BCT) is merely nine years old, since it was introduced by Satoshi in 2009. As a result, it is still evolving, and its different AVATARS are finding applications in finance, health, medicine, and a host of other industries. Evidently, each application has its own unique features and they evolve as the application matures. However, it is most matured within the confines of the finance industry, with the most exposure to trades of Cryptocurrencies, such as, Bitcoins, Ethereum, Ripple, and Bitcoin cash. So, in this section, we will illustrate the underlying operating principles of BCT using a crypto coin transaction as an example. Though, the same discussion will be true of any cryptocurrency transaction, and even any BCT based application with minor altered nuances.
Let’s consider the case, as described in the above Figure that a person A wants to send some cryptocurrencies to person B. In that case, he needs his ‘Private Key,’ – a sixteen digit – Alphanumeric code that is assigned to the transaction by the coin exchange. He also needs the ‘Public Key,’ of the receiver. Once Person A, enters the transaction on the computer it is entered and identified as a ‘Block,’ on the online stream of transactions. Next, the ‘Block’ is broad cast to multiple parties on the network – who approved the validity of the transaction. In its simplest form, the verification process entails ensuring that the sender A owns the currency, and is sufficient to effect the transaction.
In the above, transaction grouped in a particular block are assumed to have occurred at the same time, where the ensuing chain is organized in a linear chronological order. In this chain, each subsequent block contains the hash of the previous block, thus maintaining the memory of the previous block events. This still leads to another problem. A rogue node in the network can collect unconfirmed transactions and create an ‘Invalid Block,’ which he may try to insert in the Block chain of all valid blocks. A salient feature of the BCT is that the above effort by a rogue node is thwarted by Block chain, only if it contains an answer to a very complex analytical puzzle.
This ‘Proof of Work,’ providing a solution requires enormous computer resources, and may necessitate more than ten to fifteen minutes to solve on the average. The node that provides the solution is often rewarded with a cryptocurrency, and is called a ‘Crypto Miner Node.’ There is also another ‘Fail Safe Mechanism,’ built into the block chain. The block chain validation algorithm will only accept the longest chain. Hence, it will be nearly impossible for any rogue node to ‘Hack,’ the chain and introduce even a valid node in the block chain. Recall that, all blocks are cryptographically linked in a chronological fashion. So the rogue node will have to not only validate a block, but then race against time and produce subsequent blocks that are also valid.
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