Introduction to Block Chain Technology

Cryptocurrency Basics

Cryptocurrency – meaning and definition

Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that exists
digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don't have
a central issuing or regulating authority, instead using a decentralized system to record
transactions and issue new units.

What is cryptocurrency?

Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. It’s
a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead
of being physical money carried around and exchanged in the real world, cryptocurrency
payments exist purely as digital entries to an online database describing specific transactions.
When you transfer cryptocurrency funds, the transactions are recorded in a public ledger.
Cryptocurrency is stored in digital wallets.

Cryptocurrency received its name because it uses encryption to verify transactions. This means
advanced coding is involved in storing and transmitting cryptocurrency data between wallets
and to public ledgers. The aim of encryption is to provide security and safety.

The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the best known
today. Much of the interest in cryptocurrencies is to trade for profit, with speculators at times
driving prices skyward.

Cryptocurrency Examples

Some of the best-known cryptocurrencies are:

Bitcoin: Bitcoin is the most widely accepted cryptocurrency. Founded in 2009 by Satoshi
Nakamoto, it is still the most commonly traded. It is a decentralized digital currency that can be
transferred on a peer-to-peer bitcoin network.

Ether: Ether is the native cryptocurrency of the Ethereum blockchain network. Each Ethereum
account has an ETH balance and may send ETH to any other account. The smallest subunit of
Ether is known as Wei.
Litecoin: Litecoin is a peer-to-peer cryptocurrency and in technical terms, Litecoin is nearly
identical to Bitcoin. It uses scrypt in its proof-of-work algorithm. It is an adaptation of Bitcoin
that is intended to make payment easier.

Stablecoins: These are the class of cryptocurrencies whose values are designed to stay stable
relative to real-world assets like the U.S. Dollar.

Solana: Solana is a competitor of Ethereum whose main emphasis is on speed and cost-
effectiveness.

Features of Cryptocurrencies:

 Decentralization: Cryptocurrencies are decentralized, meaning they operate on a peer-

to-peer network and are not controlled by a central authority or government.
 Security: Cryptocurrencies use cryptographic techniques to ensure the security and
integrity of transactions and to protect against fraud and hacking.
 Transparency: Most cryptocurrencies operate on a public ledger called a blockchain,
which allows anyone to see all transactions that have occurred on the network.
 Anonymity: While most cryptocurrencies are not completely anonymous, they do offer
a high degree of privacy and can allow users to transact without revealing their identity.
 Limited Supply: Cryptocurrencies are designed with a limited supply to maintain their
value and prevent inflation.
 Global Accessibility: Cryptocurrencies can be accessed and used from anywhere in the
world, as long as there is an internet connection.
 Low Transaction Fees: Compared to traditional banking and financial institutions,
cryptocurrencies generally have lower transaction fees, making them an attractive
option for international transactions.
 Programmability: Some cryptocurrencies allow for programmable transactions,
meaning that they can be programmed to execute automatically based on certain
conditions.
Advantages of Cryptocurrencies

The following are some of the advantages of cryptocurrencies:

 Private and Secure: Blockchain technology ensures user anonymity and at the same
time the use of cryptography in blockchain makes the network secure for working with
cryptocurrencies.
 Decentralized, Immutable, and Transparent: The entire blockchain network works on
the principle of shared ownership where there is no single regulating authority and the
data is available to all the permissioned members on the network and is tamper-proof.
 Inflation Hedge: Cryptocurrencies are a good means of investing in times of inflation as
they are limited in supply and there is a cap on mining any type of cryptocurrency.
 Faster Settlement: Payments for most cryptocurrencies settle in seconds or minutes.
Wire transfers at banks can cost more and often take three to five business days to
settle.
 Easy Transactions: Crypto transactions can be done more easily, in a private manner in
comparison to bank transactions. using a simple smartphone and a cryptocurrency
wallet, anyone can send or receive a variety of cryptocurrencies.

Disadvantages of Cryptocurrencies

The following are some of the drawbacks of cryptocurrencies:

 Cybersecurity issues: Cryptocurrencies will be subject to cyber security breaches and

may fall into the hands of hackers. Mitigating this will require continuous maintenance
of security infrastructure.
 Price Volatility: Cryptocurrencies are highly volatile in terms of price as they have no
underlying value and there is a supply-demand-like equation that is used to determine
the price of cryptocurrencies.
 Scalability: Scalability is one of the major concerns with cryptocurrencies. Digital coins
and tokens adoption is increasing rapidly but owing to the sluggish nature of the
blockchain makes cryptocurrencies prone to transaction delays. Cryptocurrencies
cannot compete with the number of transactions that payment giants like VISA, and
Mastercard processes in a day.
 Less awareness: Cryptocurrency is still a new concept for the people and the long-term
sustainability of cryptocurrencies remains to be seen.
What is Bitcoin?

Bitcoin (BTC) is a cryptocurrency, a virtual currency designed to act as money and a form of
payment outside the control of any one person, group, or entity, thus removing the need for
third-party involvement in financial transactions. It is rewarded to blockchain miners for the
work done to verify transactions and can be purchased on several exchanges.

Bitcoin was introduced to the public in 2009 by an anonymous developer or group of

developers using the name Satoshi Nakamoto. The idea was first published on bitcoin.org in a
white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. According to that paper
Bitcoin is:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent
directly from one party to another without going through a financial institution.”

-- Satoshi Nakamoto

Some important facts about Bitcoin

 On Jan. 3, 2009, the first Bitcoin block was mined—Block 0. This is also known as the
"genesis block"
 Block size of Bitcoin is 1MB enough to store 2000 transactions.
 Bitcoin Blockchain Size is around 480 GB as on May 2023.
 Every 10 minutes a new block is added to Bitcoin blockchain.
 Bitcoin blockchain updated every 10 minutes.
 Maximum number of Bitcoins can be created is fixed to 21 million.
 As on May 2023 more than 19 million Bitcoins have been created.
 According to the algorithm by the year 2140, all 21 million Bitcoins will be mined.

What Is a Bitcoin Wallet?

A Bitcoin wallet is a digital wallet that can hold Bitcoin as well as other cryptocurrencies, like
Ethereum or XRP.

“A Bitcoin wallet (and any crypto wallet, for that matter) is a digital wallet storing the
encryption material giving access to a Bitcoin public address and enabling transactions,”

-- Alexandre Kech.
Bitcoin wallets not only hold your digital coins, but they also secure them with a unique private
key that ensures that only you, and anyone you give the code to, can open your Bitcoin wallet.
Think of it like a password on an online bank account.

With a crypto wallet, you can store, send and receive different coins and tokens. Some just
support basic transactions while others include additional features, like built-in access to
blockchain-based decentralized applications commonly known as dapps. Among other things,
these may allow you to loan out your cryptocurrency to earn interest on your holdings.

How Does a Bitcoin Wallet Work?

Because Bitcoin operates on a secure digital ledger called blockchain, using a Bitcoin wallet isn’t
as simple as opening a leather flap. For that reason, it may be helpful to think of a Bitcoin wallet
like email.

To send an email, you must use your password to log into your account, input a recipient’s
address and then hit send. To send Bitcoin, you similarly need your coded key, essentially your
password, to access your cryptocurrency. You then need your intended recipient’s Bitcoin
wallet address, similar to an email address, to send the cryptocurrency to them.

It’s important that you keep track of your Bitcoin wallet’s key. If someone else has it, they can
hack into your wallet and send it to their own wallet. And, if you lose your key, you could lose
access to your cryptocurrency. That’s because many cryptocurrency wallets are decentralized
and cryptographically secured, meaning there’s no central customer support number for you to
call to prove your ownership and identity and reset your password. An estimated 20% of all
Bitcoin currently in circulation, worth billions of dollars, is lost in digital wallets that users can’t
access.

Types of Bitcoin Wallets

As with physical wallets, Bitcoin wallets come in a range of styles, each offering a tradeoff
between convenient access and security against theft.

 Mobile: Mobile wallets, like WazirX multi-cryptocurrency wallet and Exodus bitcoin
wallet are those that run as apps on phones, tablets and other mobile devices.
 Web: Web-based wallets, like Guarda Bitcoin Wallet, store your coins through an online
third party. You can gain access to your coins and make transactions through any device
that lets you connect to the internet. These web-based wallets are frequently associated
 with crypto exchanges that allow you to trade and store crypto all in one place. While
convenient, web-based wallets still hold many of the same risks as mobile wallets,
namely that because they’re connected to the internet, they can be hacked. Though this
is a rare occurrence and stolen funds have generally been replenished through
insurance, you may not want to take this risk with your money. In addition, there have
been times when exchanges have shut down, and people lost the coins in their web
wallets.
 Desktop: Desktop wallets, like Guarda and Exodus, are programs you can download
onto a computer to store coins on your hard drive. This adds an extra layer of security
versus web and mobile apps because you aren’t relying on third-party services to hold
your coins. Still, hacks are possible because your computer is connected to the internet.
 Hardware: Hardware wallets are physical devices, like a USB drive, that are not
connected to the web. These include Ledger Nano X Bitcoin Wallet and Trezor Model T
Bitcoin Wallet available in India. To make transactions, you first need to connect the
hardware wallet to the internet, either through the wallet itself or through another
device with internet connectivity. There is typically another password involved to make
the connection, which increases security but also raises the risk you may lock yourself
out of your crypto if you lose the password. Hardware-based crypto wallets are also
known as cold storage or cold wallets. (Wallets connected to the internet, in contrast,
are called “hot wallets.”)

How Do Bitcoin Transactions Work?

 STEP 1: Transaction creation and signing

Anyone can create a transaction with 3 necessary components. The Input, Amount and Output.
For example, let´s say that Bob and Alice are exchanging bitcoin for dollars. As Bob sends the
bitcoin to Alice, Alice needs to send her bitcoin address (public) and Bob creates the transaction
and sign it with his private key.

 STEP 2: Broadcasting

Once the transaction is created, it is sent to the closest node on the bitcoin network. Note: The
transaction doesn´t need to be sent right after the creation. It could be sent a long time after
the creation (just need to be sure that you have enough bitcoins in the wallet when you decide
to send it)
  STEP 3: Propagation and verification

Once the transaction arrives at the closest node, then it is propagated into the network and
verified. After it successfully passes verification it goes and sits inside the “Mempool” (short for
Memory Pool) and patiently waits until a miner picks it up to include it in the next block.

 STEP 4: Validation

Once the transaction is on the Mempool, then the miners pick up the transactions (First those
who pays more transaction fee) and group them in blocks. As on May 2023, each block has a
maximum size limit of 1 MB (change in this limit is under discussion by the community) and
contains around 2000 to 3000 transactions, depending on the size of each transaction. Then, by
using the Proof-of-Work Consensus Algorithm, the network agrees on the valid block, and
consequently the transactions, on average every 10 minutes.

How bitcoins are created/ What is bitcoin mining?

Bitcoin mining is the process of creating new bitcoins by solving extremely complicated math
problems that verify transactions in the currency. When a bitcoin is successfully mined, the
miner receives a predetermined amount of bitcoin.
In order to successfully add a block, Bitcoin miners compete to solve extremely complex math
problems that require the use of expensive computers and enormous amounts of electricity. To
complete the mining process, miners must be first to arrive at the correct or closest answer to
the question. The process of guessing the correct number (hash) is known as proof of work.
Miners guess the target hash by randomly making as many guesses as quickly as they can,
which requires major computing power. The difficulty only increases as more miners join the
network.

The computer hardware required is known as application-specific integrated circuits, or ASICs,

and can cost up to $10,000. ASICs consume huge amounts of electricity, which has drawn
criticism from environmental groups and limits the profitability of miners.

If a miner is able to successfully add a block to the blockchain, they will receive 6.25 bitcoins as
a reward. The reward amount is cut in half roughly every four years, or every 210,000 blocks. As
of March 2023, Bitcoin traded at around $24,300, making 6.25 bitcoins worth $152,000.

What Is Bitcoin Halving?

One of the most pivotal events on Bitcoin's blockchain is a halving, when the reward for mining
is cut in half. As of 2023, network participants who validate transactions are awarded 6.25
bitcoins (BTC) for each block successfully mined.

After the network mines 210,000 blocks—roughly every four years—the block reward given to
Bitcoin miners for processing transactions is cut in half. This event is called halving because it
cuts the rate at which new bitcoins are released into circulation in half.
There have been three halvings as of May 2023:

 Nov. 28, 2012, to 25 bitcoins

 July 9, 2016, to 12.5 bitcoins
 May 11, 2020, to 6.25 bitcoins
 The next halving is expected to occur in April or May 2024, when the block reward will
fall to 3.125.