Mining for Virtual Gold: Bitcoin and Ethereum
- business-onlain201
- 17 июн. 2017 г.
- 4 мин. чтения
Throughout the ‘90s, many attempted to create a digital monetary system.
But all who tried inevitably failed... until 2009 with the emergence of the first-ever digital currency: Bitcoin.
In order to comprehend virtual cash, you first need a payment platform with accounts, balances, and transactions.
Simple, right?
However, the major problem with most payment networks is their inability to solve the double-spending problem, to prevent an entity from spending the same amount twice.
In most cases, this task is performed by a centralized network of servers that keeps balance records.
However, with cryptocurrencies, which operate on decentralized networks, there isn’t a foundational network of servers.
Instead, every portion of the platform must perform the job of recording all balances to prevent double spending.
Every peer within the network must have a list of all prior transactions to be sure that future transactions are either valid or an attempt to double spend.
In order to operate successfully, there must be a unanimous consensus among all peers within the network at all times.
If not, the entire system crumbles.
It seems that a central authority would be needed in order to “keep the peace” and maintain the network’s equilibrium.
No one thought it was possible to function without a central authority until Satoshi Nakamoto proved otherwise with the unveiling of Bitcoin.
This major innovation is able to achieve a unanimous consensus network while eliminating the central authority and with cryptocurrencies being part of this solution.
Bitcoin and Ethereum are currently the largest and most successful examples of the revolutionary cryptocurrency.
The following are current statistics according to CoinMarketCap:
Bitcoin
Market cap: $21,361,748,012
Price: $1,310.79
Circulating supply: 16,296,850 BTC
Volume (24 hrs.): $431,918,000
% Change (24 hrs.): +2.24%
Ethereum
Market cap: $5,337,220,631
Price: $58.59
Circulating supply: 91,009,838 ETH
Volume (24 hrs.): $212,106,000
% Change (24 hrs.): +12.01%
Cryptocurrencies are digital or virtual currencies that use ironclad cryptography for security, making them nearly impossible to counterfeit.
Their most attractive and alluring feature are their organic natures.
This means they are not issued by any central authority, rendering them theoretically immune to government inference or manipulation.
Satoshi Nakamoto never meant to create a currency. Bitcoin emerged as an accidental byproduct of another invention.
The grandeur of what cryptocurrencies have grown into today was never the original intention.
In an announcement on SourceForge at the time of Bitcoin’s release, Satoshi stated they had developed a completely decentralized peer-to-peer electronic cash system that prevented double spending.
Central to the genius behind Bitcoin’s success is the blockchain it uses to store an online ledger of all the transactions ever conducted using Bitcoins, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software.
Confirmation is one of the most critical concepts in cryptocurrencies.
As long as a transaction is unconfirmed by peers, its status is pending and therefore vulnerable to the possibility of being forged or meddled with.
When a transaction is deemed confirmed, only then is it set in stone and untouchable.
It is no longer forgeable, it cannot be reversed, and it becomes part of the immutable record of transactions that make up the blockchain.
Only so-called “miners” can confirm transactions. That is their role within this system.
They legitimize transactions and spread them throughout the network, becoming nodes within the blockchain.
For this job, the miners are rewarded with tokens of the cryptocurrency, like Bitcoins.
Since the role of the miner could be deemed the single most important within the network, let’s break it down even further.
Essentially, anyone can become a miner.
Again, due to the decentralization network having no authority over either delegate or ability to abuse this task, this mechanism of peers is essential for consistently strong and credible transactions.
To add to the credibility of their creation, Satoshi set a rule that miners must invest some of their work to qualify for this task. They must solve a cryptographic puzzle.
Bitcoins can only be created if miners solve a proof-of-work puzzle.
Since the difficulty of this puzzle increases with the amount of computer power the miners invest, there is only a specific amount of the cryptocurrency tokens that can be created in a given amount of time.
This is an unbreakable part of the consensus that no peer in the network can alter.
Cryptocurrencies are built on cryptography, which is another unbreakable part of the consensus.
They are not secured by people or trust but by concrete math.
There is a greater chance that an asteroid will fall on your house than that a Bitcoin address will be compromised.
They are digital gold, incapable of being corrupted by political influence.
We’ve already talked a great deal about Bitcoin. The other major player within the cryptocurrency realm is Ethereum.
The brainchild of young crypto-genius Vitalik Buterin has ascended to second place in the hierarchy of cryptocurrencies.
Like Bitcoin, Ethereum is a publicly distributed blockchain network and was originally used to augment and improve Bitcoin and expand its realm of capabilities.
However, it does more than just process transactions.
Launched in 2015, Ethereum is another decentralized software platform that enables smart contracts and decentralized applications (dapps) to be built and run without any downtime, fraud, control, or interference from a third party.
Ethereum is not just a platform but also a programming language that runs on a blockchain, helping developers build and publish distributed applications.
The potential applications of Ethereum are wide ranging.
The Ethereum blockchain focuses on running the programming code of any decentralized application, making it significantly different from its predecessor, Bitcoin.
The Ethereum Virtual Machine (EVM), the cryptocurrency’s core innovation, makes the process of creating blockchain applications much easier and more efficient than ever before.
Instead of having to build an entirely original blockchain for each new application, Ethereum enables the development of thousands of different applications all on one platform.
All applications on Ethereum are performed on its platform-specific cryptographic token called Ether.
Ether is essentially the vehicle for moving around the Ethereum platform.
According to Ethereum, it can be used to “codify, decentralize, secure and trade just about anything.”
Some even say that Ethereum’s true potential has yet to be unleashed.
It has the makings for amazing and wide-ranging possibilities.
And many say that we still don’t know how large the Ethereum network will grow.
The possibilities are endless.
Some even speculate that governments and large corporations will come to rely heavily on cryptocurrencies for most, if not all, transactions in the future.
With cryptocurrencies growing larger and larger, it could mean the death of regular currency as we know it.
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