Coin 101 - What is Bitcoin, Alt-Coin & Digital Currency (Virtual Currency)?

We are going to start all the way back at the beginning because we are finding out that a lot of people out there still do not have a clear understanding of what bitcoin and altcoin are, much less what a blockchain is and why it is so important.

There are hundreds of thousands, if not millions of articles out there about bitcoin, altcoin, digital currency (virtual currency) and how they relate to the blockchain. While they tell you "how", many of these articles don't do justice to the concepts behind "why". 

What is a Blockchain?

In 2008 Satoshi Nakamoto, a very famous pseudonym for the person or persons who invented bitcoin, created something called a blockchain. At least this is the name credited with the invention of this new and confusing technology. 

Let's keep it simple though. First, let's put it in terms of a database. A database is a store of information in a central location. You can query it to find answers and you can organize it to keep meaningful information that relates to just about anything - a relational database. Let's take that same information and, instead of making it relational, let's make it transactional. In other words, I store that data around an event. 

I buy something. That is an event. I send a message to someone. That is an event. I send coin to someone's wallet. That is an event. So that event is stored in a block of data and, everytime some event happens, that event is stored in a block of data. Ergo the term "block". Now, let's string them all together in chronological order and viola, we have our "chain". Mix in a lot of encryption, processing and cryptography, you end up with a basic view of the "blockchain". 

A database can be transactional and can store information based on events. I want to make sure you have full disclosure. "Well, if blockchain and a database are the same thing, what makes a blockchain so special?" This is where things get different.

A blockchain is a ledger system plain and simple. It keeps records of transactions. "Big deal", you say. What you may not know is that this information is immutable. Once it is entered in the ledger it cannot be changed. There are exceptions such as the 51% attack that can happen when a coin is in its infancy, but these are exceptions and not the rule. 

So here is the significance. If it is impossible to change the ledger, then this is a perfect accounting system for wealth. It means I can transfer wealth and have 100% confidence that the wealth will remain intact until I transfer that wealth. Then you may ask, "How can information be immutable?". The answer is because the same ledger sits on everyone's computer in that network and the copies are validated against each other with every transaction. 

This is a fundamental picture of the blockchain. 

Coin 101 - Bitcoin, Alt-coin & Digital Currency

So how does coin tie into the blockchain? The inventors were extremely clever. They knew that processing the blockchain would take persuasion. Why would you give up computing power for no reward. Putting two and two together, they came up with the concept that you could put this stock of wealth in the form of 1's and 0's in the middle of a blockchain. 

As people would process transactions in the form of staking, mining and masternodes, those performing the processing would get small predetermined pieces of the 1's and 0's as a reward, or compensation, for their computing power. Because many individuals end up performing the processing or moving transactions through the network, the system is peer to peer and all processors are working on the same blockchain.  

Digital Currency? Virtual Currency?

It is important to quickly note the difference between these two terms. Digital Currency includes centralized currency transactions held digitally in addition to Virtual Currency transactions which are natively digital. In other words, the term Digital Currency is a larger set of transactions that envelop govermental, fiat monetary assets held in digital balance sheets. 

Virtual Currency, on the other hand, is a subset of Digital Currency that describes crypto-currency (aka "Crypto") like bitcoin and altcoin which only exists electronically. Crypto-currency is decentralized, meaning that the government cannot control the issue of crypto nor can the government manipulate supply because the ledger that the funds are held in is distributed and verified across many, many computers on a peer-to-peer network. 

What Does It All Mean?

These 1's and 0's started out as bitcoin and have grown into an international sensation since its conception in 2008. Now it spans wealth in the billions across several thousand coins and this is only the beginning. Why is this important? For several reasons. First, is decentralization, which we touch on below. Second is the transfer of wealth. The third major impact of blockchain and cryptocurrency is the fact that the technology is in the infancy stage and we don't know the level of impact it will have on financial and technological markets around the world. 

Is it too late? Have I missed the boat? Short answer is "no". The technology has not reached the "tipping point" yet meaning that mainstream is still working on adoption. Make sure you read the article on the "Adoption Curve" and where we are in the Crypto market.

Make sure you get on the boat though. Change is coming.


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