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Believing in the Bitcoin revolution requires comprehension of its fundamental aspects. Many people argue that the underlying Bitcoin technology, blockchain, is revolutionary. That’s because humans can apply it elsewhere other than in cryptocurrencies.
So far, Bitcoin’s popularity has continued to increase during its existence. Today, many merchants accept Bitcoin as a payment method. People are also investing and trading Bitcoin on platforms like Crypto Trader. Ideally, people use fiat money to purchase Bitcoin on these platforms. You can also sell Bitcoins to get fiat money.
But before starting to use this virtual currency, it’s crucial to understand its fundamental characteristics. These are the reasons why many entities are interested in this digital currency.
The primary reason why many people find Bitcoin interesting is that they don’t have to trust any entity to use it. Ideally, no entity needs to trust the other for the Bitcoin network to work. Traditional currencies like the U.S dollar require a central authority for people to trust and use them. Unfortunately, this central authority becomes the primary weakness that causes its demise.
With this virtual currency, each aspect of the ecosystem plays a role in validating what other parts say without trusting anybody. After broadcasting a transaction, every node receives and verifies the validity of the signatures. The network discards a transaction if the nodes declare the signatures invalid.
Additionally, every node in the network has a ledger’s copy. That means there’s no need to trust one organization, entity, or third party. Ideally, the parties don’t have to trust each other, yet they can use the ledger to verify transactions using their copies. And this decentralized ledger is called the blockchain.
The groundbreaking aspect of modern economics is the proof-of-work which incentivizes individual actors in the network. The incentive encourages honesty among the nodes.
In the simplest sense, immutable means nobody can undo transactions or records. In terms of cryptocurrency and blockchain, immutability follows these principles:
Rewriting history is complicated or highly improbable
Moving funds is impossible for anybody else apart from the private key’s owner
The blockchain records all transactions
With traditional currency, people check transaction history with their bank to know how they have spent their money. Thus, they trust banks not to manipulate or fabricate transactions. If a person notices fraudulent transactions, they trust the bank to fix the situation.
Bitcoin eliminates the elements of trust and centralization. Thus, Bitcoin users don’t have to trust any third party to use the virtual currency. As such, blockchain makes transaction records unchangeable or immutable and public.
Although it may not be impossible for a person to alter the transaction ledger, Bitcoin uses cryptographic security that makes this extremely difficult. Ideally, you can only compromise the cryptocurrency users’ network to modify Bitcoin’s transaction ledger details.
For most people, decentralization is a relevant buzzword. Thus, defining it in this article is essential. And this word can have several meanings.
The blockchain is politically decentralized, meaning nobody controls it. Also, it’s architecturally decentralized, meaning that no single infrastructure serves as the central failure point. However, this technology is logically centralized, meaning it has one agreed state and the entire system acts as one computer. Here’s what this implies:
Fault tolerance: A decentralized system is unlikely to fail because it depends on separate components’ networks.
Attack resistance: Attacking, manipulating, and destroying a decentralized system is expensive because it doesn’t have a vulnerable central point that a person can attack at a lower cost.
Collusion resistance: Decentralized system members can have a more challenging time trying to act in a way that would benefit some of them and not others.
Ideally, immutability, decentralization, and trustlessness are the key characteristics that make Bitcoin so revolutionary. What’s more, the limited supply of this virtual currency makes it deflationary. That’s why so many people are interested in this virtual currency over fiat money.
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