Bitcoin and Ethereum: Cryptocurrency Basics

Bitcoin and Ethereum: Cryptocurrency Basics

Ethereum is more than virtual money

Both Bitcoin and Ethereum are decentralized products, so they are not controlled by the government or other central authorities. Both are built on distributed ledgers, known as the blockchain.

Blockchains are controlled by a decentralized network of users. They are paid to process the data stored on each blockchain. Any person who tries to mess with something will be noticed immediately and any attempt at fraud will be blocked. Blockchains are immune to change and attack as long as at least half of the network adheres to the assumptions made in the algorithm.

Bitcoin was designed to provide people with the ability to transfer value anonymously without a central bank or other intermediaries. Ethereum, on the other hand, is a blockchain with much broader capabilities. In addition to transferring funds, it allows you to design all sorts of applications whose rules are determined by smart contracts. In the same way, the mining software is functioning via Ethereum net. You can get it to bring up your coins but it is extremely difficult with not enough computer power.

Interestingly, some users are starting to hold their Bitcoins on the Ethereum chain instead of the Bitcoin blockchain. Bitcoins on the Ethereum network are known as “Wrapped Bitcoin.” Ether, on the other hand, cannot be stored on Bitcoin’s blockchain.

What is Bitcoin?

Bitcoin is a virtual cryptocurrency, created in 2009 by unknown authors acting under the pseudonym Satoshi Nakamoto. Its existence is based on extremely advanced cryptography and a peer-to-peer (P2P) exchange network. Bitcoin can be used to fund a variety of electronic transactions in a simple, fast and fairly secure manner.

Using Bitcoin

In principle, anyone with a computer can mine Bitcoins. The clear inspiration for the creators of this currency was gold – how it is mined and its function in the economy. In the simplest terms, Bitcoin can be obtained by sharing the processing power of your computer. The cryptocurrency creation system works as a sort of perpetual motion machine – the work of the “miners'” PCs are needed to complete Bitcoin transactions online. However, there is a catch, because in fact for the average person the chances of mining a single coin, currently worth almost a thousand dollars, are small. Here, great computing power is needed, obtained with the help of entire farms of powerful servers. It makes mining os to be useless for standard users. When you’d like to get any advantage from this activity, and investment needed is very, very high.

Some entrepreneurs have taken the risk, buying powerful computers and paying huge electricity bills. By the time they manage to mine a few Bitcoins, they may find that they have lost value, thus generating a loss for the entire business. Interestingly, the authors of the cryptocurrency have put in their concept some clever mechanism to regulate the digging. Well, the more “miners” in a given period are trying to acquire digital coins, the more difficult the task. When groups of prospectors abandon further efforts, Bitcoin mining becomes easier, thus encouraging new “miners” to take action.

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