Bitcoin, Crypto Currency, and Block Chain

Bitcoin is a crypto currency that has been a hot topic for several years, but what is crypto currency and the technology behind it? A crypto currency is digital asset or digital currency designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets (Wikipedia, 2018). The value of a crypto currency, like the value of anything, is based on several factors. Part of the value is based on the cost of generating or mining new coins, but to understand how new coins are generated you first must understand the technology behind it.

The underlying technology is a secure communication (cryptographic) process known as block chain. Transactions take place in a peer-to-peer network, meaning that many individuals connected through a computer network are all aware of every transaction that takes place. There is no central record keeper of transactions. Transactions are recorded in blocks and the blocks are chained together. Each subsequent block knows all there is to know about the previous block.

As work is done to keep track of the transactions, additional currency is generated. Participants in the network are rewarded a portion of the currency for their contribution, also known as mining. As the chain gets longer and more complex, the amount of work required to generate new currency also increases. It becomes increasingly more difficult or expensive to create additional units, therefore creating scarcity. As the ability to create additional currency become more difficult the value of the existing units increases. Block chain is useful for more than just crypto currency; it is being investigated by many industries to improve their digital processes. More in-depth information can be found in the resources below as well as many other explanations available on the internet.

 

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