Often, we can hear words like Bitcoin and Blockchain, whose true meaning is insufficiently clear to us. Nevertheless, these “magical” words attract us primarily because there is the possibility of fast and big profit of Bitcoin trade.
For Bitcoin, it is usually said that this is a new type of currency or money. Is that right? Each currency has a central bank that emits a currency and monitors the monetary policy, so it determines how much money will be broadcast and determines the exchange rate of its own currency in relation to other currencies. Bitcoin doesn’t have its central bank so what determines its exchange rate? Many economists claim that Bitcoin is actually a commodity rather than money, but let’s suppose that it is a currency.
Ownership of Bitcoins
The next question is if I buy Bitcoin where is it stored and how do I know it belongs to me? Bitcoin is nothing more than an electronic record that is on the computer and doesn’t exist in physical form, so there are no coins or printed Bitcoin banknotes. An electronic record contains a unique code that defines Bitcoin or its part that we have purchased and which is ours. Of course, we do not have to buy one Bitcoin but we can buy and own one part of it. The unique code that describes Bitcoin can be compared with the serial number of the printed banknote. Let’s imagine that it is enough to know the serial number of the banknote and that it is not necessary to have the banknote itself, as is the case with Bitcoin.
How to know that the purchased amount of Bitcoins is ours? The Bitcoin property record is also an electronic record somewhere on the computer. However, in order to make sure that one of the owners of Bitcoins did not change the amount he owns, this record is located in several places at the same time. A system that ensures that the electronic record of our ownership of Bitcoin is reliable and that no one can challenge it is called Blockchain. The blockchain is a system whit which the ownership information over Bitcoin is located in multiple places at the same time. Should there be a deliberate or accidental change of ownership information in one place only, Blockchain would immediately see this disagreement and declare the amended record invalid.
Why Is Bitcoin Called Cryptocurrency and what are those?
We mentioned the code by which Bitcoin is identified and on the basis of which we know reliably that this Bitcoin exists and belongs to us. His code is obtained by complex mathematical calculations using cryptographic mechanisms. Cryptography is an area that deals with encryption and decryption of data, and one of its special parts is used to calculate the Bitcoin code.
All currencies using cryptographic mechanisms are called crypto currencies. Currently, there are more than 1,300 different crypto currencies, of which Bitkoin is certainly the most widely spread and most famous.