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Complete Explanation of Bitcoin, Blockchain and Cryptocurrency

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Complete explanation of Bitcoin, Blockchain and Cryptocurrency

The following is an article about what bitcoin and cryptocurrency are in the form of a simple analogy and whether or not it is safe to invest in this digital currency.
 
For those of you who are still confused about Bitcoin and several other digital currencies, starting from how it originated, who made it, how to determine its value, how to invest, and so on, Origin will try to help explain it using a simple analogy.

Before getting into an explanation of Bitcoin, you first need to understand what is called Cryptocurrency.

What is Cryptocurrency? 

Cryptocurrencies, sometimes called virtual currencies, digital money / digital cash, or tokens, differ from national currencies such as Dollar, Yen, and so on. 

This type of cryptocurrency exists online and is not supported by the government, but is supported by their respective publisher networks. 

Technically, Cryptocurrencies are a limited entry in a database. Some special terms and conditions must be met to modify this entry. Using cryptography, the entry is secured with a puzzle in the form of a math problem.

The limited entries are published through a database ( Blockchain ) that is in a peer-to-peer (P2P) network, aka a network where each person can exchange data and information without intermediaries or via a central server. 

The network will record all data transfer activities and prevent what is known as Double Spending.
 

What is Double Spending? 

Double Spending is a problem that is feared to occur in a digital asset, and in this case is Cryptocurrency. 

Why? 

Because in physical currency, printing and publication are strictly regulated by the state and it is impossible for a currency that has the same serial number to be reprinted (very unlikely). 

Meanwhile, for digital currency, because of its digital nature, aka "not real", it is possible for someone to reproduce/duplicate a currency, and that is what is called Double spending. 

Then how can a Bitcoin network or similar currency prevent double-spending? 

The trick is that the network ensures that everyone who will make a transaction, also includes their BTC usage record entries in a virtual journal on the Blockchain. 

So, someone who only has 1 Bitcoin (BTC) will not be able to send 1 BTC to two people with an amount of 1 BTC each, but there will be no problem if someone wants to send 1 BTC to 2 people with the amount of 0 each. 

But not only that, in transactions using Cryptocurrency, you must have what is called a Cryptocurrency Wallet, aka a Cryptocurrency wallet. 

What is a Cryptocurrency Wallet? 

Cryptocurrency Wallet can be said as your bank account, which must be used every time you do Cryptocurrency transaction activities. 

Each wallet will contain the public and private keys of a digital currency and not the personal data of a person or owner. 

The public key functions so that the wallet can receive digital money from other wallets, while the private key allows the "owner" of the wallet to add new transaction entries to the Blockchain database. 

In this way, Bitcoin, Ethereum and the like will be able to function like a physical currency, where ownership status can be recorded and someone cannot send some digital currencies that they do not own, like physical money. 

On that basis, the term Cryptocurrency is also used, because Bitcoin and the like can already function as a medium of exchange like physical money and also every asset or digital currency is protected by cryptography (Cryptography), aka encrypted. 

In general, we can see that Cryptocurrency has the following characteristics: 
  • One-way transaction - The point here is that there is no possibility of double spending on a cryptocurrency. 
  • Anonymous - Because using a wallet alias has an account that does not contain personal data so that confidentiality and anonymity are maintained. 
  • Global and easily accessible quickly - Every new entry on the Blockchain will spread rapidly across the network and will also be confirmed quickly as well. 
  • High security - Every Cryptocurrency uses the latest Cryptography technology so that security will be maintained. 
  • Has a limited supply by the network 

After we understand what is called Cryptocurrency, aka cryptocurrency, then we need to understand what is called Blockchain before moving on to understanding Bitcoin and several other cryptocurrencies. 

What is Blockchain? 

Previously, we explained how a Cryptocurrency transaction occurs where all these transactions will be added to the database entries of a Blockchain. 

The point is this, every time a Cryptocurrency transaction occurs, the transaction data, which occurs within a certain period of time, will be collected into what is called a Block. 

So, Block is a collection of transaction data that occurs at a certain time period. 

While Blockchain is a combination of several Blocks. 

If you have studied accounting, you must be familiar with the terms journals and ledgers. So, you can imagine Blockchain as a digital ledger, which can be accessed by the public. 

Data or journals from each transaction will be recorded in a Digital Ledger called Blockchain. 

Still, confused? Let's compare Blockchain with the Wikipedia website, which is accessible to the public and everyone can update it. 

For every article on Wikipedia, there is always a master / first article stored on Wikipedia's server, which is then modified by users on that server. 

Blockchain does not function like that, because every device connected to a Cryptocurrency network has its own "master article" aka "master database" and will update it on their own device independently. 

In conclusion, Blockchain is a digital ledger of cryptocurrency transactions that can be accessed by the public connected through a device, into a Cryptocurrency network, where each device can update the journal independently. 

Now, after we understand what Cryptocurrency is and what Blockchain is, then we will be able to better understand Bitcoin and other cryptocurrencies, as well as the mining process. 

What is Cryptocurrency Mining? 

Then what is the function of Mining in Cryptocurrency transactions? 

The activity of "mining" aka Mining in a Cryptocurrency activity is an activity that has 2 main functions, namely: 
  • Securely add transaction entries/journals to the Blockchain and also verify these transactions. 
  • Issuing new cryptocurrency on each block. 
The stages of the mining process are as follows: 
Every time there is a Cryptocurrency transaction activity, miners will verify the validity of the transaction. 
Once verified, the miners will bundle/compile these transactions into a Block. 
Then the miners will be required to solve a puzzle called Proof of Work (PoW). 
After the PoW is complete, then miners can enter the Block they make, into the Blockchain. 

So you know, what is Proof of Work aka PoW ? and why must it be completed? why can't you enter Block directly into the Blockchain? 

What is Proof of Work (PoW)? 

Proof of Work aka PoW is a very difficult dataset (time-consuming and costly) to generate, but easy for others to verify. 

The costs referred to here are the use of hardware resources (CPU, RAM, VGA Card), electricity, and time. 

The puzzle that miners have to solve in PoW is to find a set of numbers which, when combined with the data in the Block, will form what is called the HASH number. 

This set of numbers is commonly referred to as the Nonce alias Number used once or "Numbers that are only used once". In Bitcoin, the nonce range used as a benchmark is between 0 and 4,294,967,296. 

This puzzle is basically a number guessing game, but it is very time consuming and requires a lot of resources (devices and electricity). 

Each “miner” will compete to solve the puzzle to get some cryptocurrencies in return, and if there is already a winner, other miners are no longer allowed to work on the Block and move on to another Block. 

The explanation is super easy, the mining process is like the process of printing money by a country. 

Cryptocurrency Mining Cycle 

The mining cycle of a Cryptocurrency is as follows: 
  1. New miners join a network 
  2. The build rate for new blocks has increased 
  3. Mining time on average will decrease/accelerate 
  4. Mining difficulty has increased 
  5. The block creation rate will decrease 
  6. The average mining time will return to normal 
  7. Back to number 1 

The level of difficulty of a mining process is set by each Cryptocurrency network and will change every 2016 Blocks (about 2 weeks). 

What is Bitcoin? 

After previously reading about Cryptocurrency and all the activities and terms in it, of course, it will not be difficult to understand what is meant by Bitcoin. 

Bitcoin is the oldest cryptocurrency which was first launched in 2009, after a year earlier the concept of this type of currency was proposed by someone who uses the alias Satoshi Nakamoto. 

The first generation of Bitcoin used a client software called X bitcoin and in 2010 some began to use it, one of which was used to buy Pizza. 

In the early days of its appearance, Bitcoin's popularity soared due to the use of Bitcoin on Silk Road, a Black Market website on the Deep Web, which offers illegal services and products and only accepts Bitcoin as a means of payment. 

Due to its pioneering status and is widely used, the exchange rate of Bitcoin is currently very high where at the time of this writing, 1 BTC is worth around USD $31,591.10. 

Bitcoin also guarantees that it will not issue its currency with an excess supply and will stop issuing new Bitcoins when 21 million Bitcoin are circulating on the market. 

Now, after understanding what is called Bitcoin, then I will explain how to invest in Bitcoin and several other similar currencies. 

Bitcoin Units

Bitcoin Units

The smallest unit of bitcoin is called the satoshi with a value of 0.00000001 B for each satoshis. Getting 1 Bitcoin requires 100000000 satoshis. For details, please see below the conversion:
1 Satoshi = 0.00000001 B
10 Satoshi = 0.0000001 B
100 Satoshi = 0.000001 B
1,000 Satoshi = 0.00001 B
10,000 Satoshi = 0.0001 B
100,000 Satoshi = 0.001 B
100,000,000 Satoshi = 1 B

How to Invest in Bitcoin? 

There are several ways to invest in Bitcoin and other Cryptocurrencies, namely: 
  • Become a Miner. 
  • Become a Trader. 

Each investment has its own advantages and disadvantages and you should really consider which investment is the most suitable for you. 

Become a Bitcoin Miner 

Become a Bitcoin Miner
Photo Credits: Blockgeeks.com

If you decide to become a Bitcoin miner, then you need to prepare a lot of capital, especially if you want to reap big results. 

What is the capital used for? 

For miners, this capital will be used to buy hardware that will be used to mine Bitcoin or other Cryptocurrencies. 

The hardware here is the same as buying a newly assembled computer but has different settings than assembling a regular computer. 

There are several types of methods for mining, including: 
  • CPU Mining 
  • GPU Mining 
  • FPGA Mining 
  • ASIC Mining 
  • Cloud Mining 
The CPU Mining method, where mining activities use CPU / Processor resources, is not used much anymore because the costs are not worth the income. 

The GPU Mining method, aka mining using a graphics card / VGA as a mining “tool”, is still quite widely used, although due to the current scarcity of VGA cards and its drastically increasing prices, it can result in a decrease (or maybe a decline) in the use of the method. this in the future. 

The FPGA (Field-Programmable Gate Array) Mining method is an alternative method of GPU Mining where the FPGA method is being used in this method, and at the beginning of its appearance, it has better performance than GPUs, although gradually it is no longer used. 

The ASIC (Application-Specific Integrated Circuit) Mining method is a method that is currently very popular, especially in mining Bitcoin. 

ASIC itself is a microchip specially designed for mining Bitcoin and is considered the single most profitable method if you want to mine Bitcoin at this time. 

The basic differences between ASIC and GPU Mining include: 
  • ASIC devices are only for 1-3 types of cryptocurrencies, while GPUs can be used for various currencies. 
  • ASIC device prices can exceed GPU prices 
  • Because it is more devoted to mining, ASIC performance is better than GPU. 
  • It is difficult to sell used ASIC devices. 

Meanwhile, the Cloud Mining method is another alternative to mining Bitcoin, namely by investing in Bitcoin mining companies, where they will "rent" their device for you to use as a Mining Rig. 

Based on information from a friend who invested as an Ethererum miner (about 2-3 years ago), to build a Mining Rig device using a GPU, it costs around USD$60 000 (specs not disclosed).

The risk of this method is the heavy monthly costs that you bear (for example electricity), and if the currency exchange rate drops you will probably return your investment longer. 

Become a Bitcoin Trader 

Well, if this one method is arguably easier, at least from a technical point of view. Because, being a Bitcoin trader means you don't have to build tens of millions of rigs or manage, pay monthly electricity, and so on. 

All you have to do is buy cryptocurrencies when the exchange rate weakens and sell them when the exchange rates rise again. 

But, it's not that there are no risks. This investment is more or less the same as investing in Forex and stocks, and you should really study the latest news about the future prospects for Bitcoin and cryptocurrencies, current market conditions and so on. 

In fact, investing as a trader will be riskier, especially if you invest funds that are not more funds and are ready to burn, because the Cryptocurrency exchange rate will fluctuate all the time, so you have to be more accurate and have a mental attitude that is ready to lose. 

But as long as you remind yourself once again, before investing as a trader, consider the following: 
  • Do not intend to profit quickly 
  • Use the extra funds, which are ready to burn 
  • Prepare yourself to lose 
  • Do not rush to sell when the price seems to be decreasing or going up, try to re-observe the trend and market situation in the past and predict what the future will look like. 
So, how safe is it to invest in Bitcoin and other cryptocurrencies? Is it right to be used as a long term investment? or should it only be for the short term? 

Is it safe to invest in Bitcoin and the like? 

Then, can our cryptocurrency be stolen, lost, or because it's digital, hijacked/hacked by someone else? 

The answer is Maybe

Why? the following is the explanation. 

The first is that there is no "safe" investment. But we are not talking about the possibility of losing investment, because that possibility must exist in every investment. 

Then when talking about whether our wallets will be safe from theft, hacking or theft, the answer is still YES. That possibility remains. 

Because it is a digital asset, of course, the possibility of hacking still exists. Although it is unlikely that your wallet will be hacked, your wallet may be stolen, mainly because of its anonymous nature. 

Well, but there are several ways to secure your Wallet from theft or unauthorised burglary, which are as follows: 
  • Use an official wallet from Bitcoin or other cryptocurrencies. 
  • Do not pile up too many Bitcoin or other cryptocurrencies in wallets, cash it out immediately. 
  • Make a backup of your wallet. 
  • Save the wallet in a location that is not connected to an internet connection 
  • Encrypt wallet with a unique password
  • Make sure the mining software is always the latest 
  • Use the multi-signature feature 

It is hoped that you can use some of the methods above to secure your Bitcoin or other Cryptocurrency wallet so that it won't be lost, stolen or broken into. 

Hopefully, this article can further increase your knowledge of Bitcoin, Cryptocurrency, and the various terms in them. If I have left something, please advice me through the comments. 

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Complete Explanation of Bitcoin, Blockchain and Cryptocurrency
This type of cryptocurrency exists online and is not supported by the government, but is supported by their respective publisher networks.
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