Bitcoin Blockchain Technology

In this post, we will see what is the Bitcoin Blockchain technology, how it works and why it is different from the way a bank works.

A bank at the end of the day is a company, we just have to stop and think a little bit about how it works when compared to companies that are in other lines of business and therefore have different assets and processes.

We’re going to explain all this because once we understand it, we’ll go into detail about how cryptocurrencies work.

This is the easiest way to understand it since, in fact, they operate in a quite similar way but Bitcoin and the other cryptocurrencies offer the advantage that they are not centralized and therefore are not controlled by a central institution, which makes them more reliable and in fact more secure.

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Bitcoin Blockchain: Bank vs. Companies

The first thing is to compare a bank against other types of companies and it is that while companies in the processing industries typically have to acquire large amounts of various raw materials as well as expensive machinery to transform them into finished products, the truth is that the banks’ raw material is simply our money and basically they control everything with computer systems.

This is part of the reason why nobody understands why the high commissions they charge us as users of their services have not decreased, since handling everything as ones and zeros in computer systems makes costs cheaper, which should decrease the fees they charge to the consumer.

For now, we want to focus on how a bank keeps track of your account details, that is how a bank when you check your account balance can tell you exactly how much money you have and therefore how much money you can spend or withdraw.

Bitcoin Blockchain Technology

 

How the bank handles your money

A simplified way to explain it is to imagine a file from an Excel spreadsheet program. In one of the sheets of this big book, the bank puts on each line the details of all the movements you make in your account.

For example, when you open your account with the minimum deposit required by the institution, then it records an increase in that first line which is a deposit to the account.

A few days later you receive your salary payment and at the same time, you immediately deposit it into your account.

As the second line of the sheet, the bank writes an increase to your account for the exact amount that was deposited and of course updates the balance.

Later we think they go to a teller and withdraw half of those funds, that will be recorded as the third line and will also change your balance with the withdrawal so that only half remains as something available in your account for later withdrawal.

In general, this is the way the financial institution controls how much money you have in your account and, of course, how much you can spend.

An important point is that they are giving their bank enormous confidence and responsibility since they are the ones who will be in charge of keeping this great book with the details of their account as well as all the other clients’ accounts they have.

 

Disadvantages of the bank

But what if that big bank of yours has an account, suddenly makes a mistake in the balance it has.

You probably think it would be a problem but far from being a nuisance you can solve it since you would have to go and place a complaint at your nearest branch and a process of creation would open up which hopefully, in the end, you would be favored and would recover your balance.

This is feasible but think if all the accounts in the bank would suffer from this type of error there would be many annoying customers and probably the bank would go bankrupt without you being able to recover any of your wealth as a domino effect occurs in which every customer worries and goes to the bank to withdraw their money.

This causes the bank to have insufficient funds to meet the request of all its customers because in fact a large part of it lends and it does not have it available to give to all the customers who request it and this can happen.

This panic reaction can happen for several reasons.

For example, if the bank were to be hacked or if its infrastructure were to be damaged, there are in fact other reasons that could cause the bank to fail.

It can be simply mismanagement or problems with the loans they make that just lead to bankruptcy and once again you would not recover a single penny of your wealth.

There are many possibilities, but for now, we just want you to focus on something that can cause the bank to fail and that is the mismanagement of this great book that has all the detail of the movements of the accounts of different customers.

The conclusion is that this book is of immense value and therefore you are relying too much on one single institution to carry that great book.


The importance of the “Big Book”

Now, let us imagine a way in which there may be many responsible for this great book by making the medium in which you store its value much safer, i.e. the one in which you save.

Besides that information does not have to be exposed.

Although there are many responsible no ones who can really know that you are the account holder, no one can easily identify you and this has many benefits.

If there is only one entity to which you entrusted all your life’s savings and that entity fails, you lose everything.

In fact, some people who are aware of this problem choose, for example, to get several accounts at different banks in order to mitigate risk.

This is a valid approach since we can divide our savings exactly in half and one of those halves is placed in one bank and half in another.

If we manage to do this and one of the two banks fails, we have only lost half of our wealth.

Someone may be thinking of another option where we continue to increase the number of banks and accounts, and in fact, he’s right in that as we go to distribute our savings to more and more banks, this risk becomes more and more dispersed.

However, this has several disadvantages. Firstly, the fact of having to go in person to each bank when it is necessary to do something, even if it is only at the moment of opening the account.

We will have to pay more fees than at the end of the day, which are commissions or annual and monthly fees that will reduce our income.

 

Bitcoin Blockchain Technology

Therefore there must be a better way and this is exactly what Bitcoin achieves with Blockchain technology.

But to understand this, it is necessary to review how the protocol works and how its technology makes it safe to use so that anyone can have the confidence to place value on these crypto-currency units.

Blockchain is the big book in which all the transactions with Bitcoin that take place in the world are registered, basically the technology that helps that registration.

In fact, this technology is known as blockchain technology, in which each block is confirmed in an average of 10 minutes and precisely what each of these large blocks contains are all the transactions that were made during that period of time.

To understand the process in-depth it is necessary to talk about the concept of mining. We are just mentioning that each new block that is generated is confirmed in an average of more or less 10 minutes.

The people who carry out the mining are those who use the processing power of the computers at their disposal.

By solving different algorithms, including cryptography, which is why we know them as crypto-currencies, they certify that the other operations have indeed happened and that the owners of the crypto-currency units are the ones who originated the instructions to send to a receiver identified with its bitcoin portfolio address.

Any person using bitcoin can review the code with which all operations are reviewed but can also become either a miner or also a node manager which then gives them the possibility to work just for the confirmation of the blocks and thus ensure the security of bitcoin and that no one can misuse this crypto-currency as it could carry out a fraudulent instruction.

 

Advantages of Bitcoin Blockchain

In this great book, a record is kept of all the transactions that occur using bitcoin as crypto-currency and this is just a big difference from traditional banks.

One of the great advantages that Bitcoin offers is that since it doesn’t keep track of the operations of a single entity or institution, but of all the existing accounts in the world that use Bitcoin, there is no central control or institution that can fail and cause you to lose everything you worked so hard to gain.

This is one of the facts that has caused discomfort to the banks since we can effectively say that Bitcoin has advantages over the operation of these institutions, which are practically thousands of years old and have a lot of power.

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For the first time, people have a viable alternative to the services offered by these institutions and we don’t even go into detail about the commissions they charge since as we’ve commented on many occasions, operations with Bitcoin at this time charge no commission at all or are sometimes so low that it’s really prone to zero and is minuscule.

Even in the future, they are expected to remain infinitely lower than what the banks currently charge.

This also helps us to understand why many times you may have heard something about Bitcoin on the news, but it is really bad news because it is touching very sensitive fibers of global and very powerful organizations such as transnational banks.

The first option that they are going to have is to reject it and seek publicity when there is a problem with the cryptocurrency.

The good news is that they will be returning to the people who started using Bitcoin on a daily basis.

Besides, this technological innovation is so good that even some banks have made the decision to adopt it and start taking advantage of it.

The truth is that we, and almost nobody at least at this moment, consider that money or the new traditional ones are going to disappear at least not in the short term since each one has its place.

But of course, Bitcoin, as we have mentioned, has some clear uses and advantages, such as in the case of remittances, where someone wants to send money from one country to another over their country of origin, and that to make an interbank transfer, which is between different countries, the banking institutions charge high commissions of, for example, up to 20 US dollars or more, depending on the counterpart’s zero commission to send Bitcoins, no matter how far.

So sending Bitcoins is as easy as sending an email to someone next to us or sending it to someone somewhere in the world.

At the end of the day, it’s just ones and zeros on computers. So why are we going to keep allowing these institutions to not lower their fees and therefore we have to keep paying them and that way these grants keep a very big part of the money that we have worked so hard to earn.

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