Understand the mechanism of cryptocurrency

What is important in the mechanism of cryptocurrency is

“P2P (peer-to-peer)”and“Blockchain”

.

A peer refers to Peer, a term for equals, a group of computers directly connected to the Internet,

and refers to a computing method where computer terminals directly and equally exchange data and execute it.

Traditionally, information exchange was mainly done through servers, but now it is possible to exchange without a administrator.

Skype, famous for Internet calling, is a service that uses this P2P.

In a blockchain, a “block” refers to a transaction record.

A set of transactions that occurred within a certain period are grouped.

The information of the “block” is connected as a “chain” and distributed across the network to users.

All transactions are stored in the blockchain and distributed across the network, so no single server can be attacked to halt or take over transactions, and the transaction history can be checked by network participants, making fraud and tampering impossible.

In addition, transactions can be made freely with people around the world without being forced under the rules created by central organizations like banks.

If you think back to banking transactions,

for example, when person A sends money to person B.

A → Bank → B, going through a bank is necessary.

In this case, because the bank’s system is used, a fee is charged.

If person A tries to send more money than the balance, the bank will indicate an error, saying insufficient funds.

Also, if there is any doubt about the funds in A’s account, the bank may stop the transfer and freeze the account, with the bank handling, managing, and deciding at its discretion.

In the case of Bitcoin, a cryptocurrency, using P2P and blockchain, you can send directly from A to B without a central organization like a bank, so fees are kept low and the transaction is completed in a short time.

◯ Understanding how Bitcoin works

Bitcoin was created based on a paper written by Satoshi Nakamoto in 2009

“Bitcoin: A Peer to Peer Electronic Cash System”

This paper was the trigger.

In the paper,

“One unit of electronic cash is defined as a chain of consecutive digital signatures”

and

・The administrator does not control the currency

・Currencies are managed using computers worldwide

・A mechanism that cryptography can prevent illegal replication and use, establishing trust

is highlighted as a feature, and cryptocurrency is defined as cryptography-and- currency conservancy.

This paper served as a catalyst for Bitcoin, created by various engineers.

Bitcoin uses blockchain and P2P, so it has no central government or bank issuing currency like national currencies.

There is software called “miner” for mining bitcoins, and this software adjusts the circulation amount and issuance timing.

If few people want to mine Bitcoins, you can mine quickly; if many want to mine, more time is needed.

It is easy to imagine not as currency but as “gold.”

Gold is a natural mineral, not issued or managed by central governments or banks.

Because mining is difficult and reserves are limited,

people around the world consider “gold” valuable, and its price is determined accordingly.

Bitcoin also has a limited supply, with a maximum of 21 million bitcoins expected to be mined by 2140, and, like gold, it has the potential to hold value.

Bitcoin also, because it uses P2P, has no central server, and directly connects between computer terminals to send and receive data, so servers cannot be attacked and transactions cannot be halted.

Furthermore, all transaction information is permanently recorded in the network’s ledger, making it impossible to forge or tamper with Bitcoin’s ledger.

Encrypted information with electronic signatures is sent to the Bitcoin network, and once authentication is completed in a few minutes, the recipient can use the Bitcoins.

Because it can be sent directly from person to person, there is no need to pay high fees, and accounts cannot be frozen.

Bitcoin uses cryptographic algorithms to prevent double-spending, ensuring security and anonymity, and by limiting the supply, it maintains market value.

◯ The various possibilities of blockchain technology

Central organizations that we rely on in our daily lives.

Banks, city halls, and others may become unnecessary by using blockchain.

For example, land registry could be managed without tampering or illegal transfers by using blockchain.

Elections could be conducted with blockchain by distributing one vote to each member, enabling a completely fraud-free national referendum system.

Medical records could be built on blockchain, preventing doctor tampering or data loss due to fires.

Not only money but also information management has unlimited potential of blockchain, and it is attracting attention.

In finance, supply chains, lifestyle, platforms, and other fields, it is said to have applications, and many engineers are working on development.

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