Greetings, fellow traders!
As always, it’s been quite an unpredictable last few weeks in the world of Crypto. While Bitcoin has remained somewhat stagnant around ~$14k, Ethereum hit an ATH (an all-time high) of $1000 per coin! This was an especially happy moment for me as ETH was actually the first cryptocurrency I chose to invest in several months ago. Other big news too – relative newcomer altcoin Ripple (XRP) briefly unseated ETH for the number 2 spot on the Cryptocurrency Market Cap before settling down to the #3 position when ETH edged closer to that $1k mark. Not everyone is pleased with XRP, however. Ripple has been catching some flack for not being a “true” cryptocurrency. Some folks out there believe that in order to be considered an alternative currency, the currency must be decentralized. As you might’ve guessed, XRP is a centralized currency. It has an organization, a CEO, employees, etc. and rumor has it it’s being bought up in droves by US banks. It certainly seems like it’s here to stay regardless of the widespread consensus. While it does go against the grain of the definition, and drumming up controversy among would-be traders, that’s not keeping me from investing in it! As anyone who trades coins spends their time sifting through pages and pages of “white papers” and forums or checks their phone religiously for price updates, etc. will tell you: it’s quite a fun ride.
In the last week’s Techtails, we touched briefly on Bitcoin transactions, but HOW does this transaction occur?
Let’s backtrack and break it down step by step.
Connor sends Don 1 BTC in exchange for a real nice, real sweet 15” MacBook Pro, (again, the current value of 1 BTC as of today’s writing stands at ~$15k.) He does this by essentially going to his BTC wallet, grabbing his wallet address or “private key”, (the input) where his BTC is stored. (An address/public key resembles a random string of alphanumeric characters that identifies where to draw the BTC from. Every wallet address or public and private key is different.) He then designates the deposit total of 1 BTC to Dons “public key”, (the output), and confirms the payment. Within a few moments, Don will receive 1 BTC and Connor walks out with the Holy Grail of MacBook Pros.
So that explains how the transition works, but doesn’t tell us what exactly happens on the backend of that transaction. Cryptocurrency at its core is supposed to be about transparent financial dealings, right?
Yes!
Once Connor hits that “Send” button on his phone (yes, you can do these transactions right on your phone), so begins a process that is truly the magic of blockchain technology.
The MacBook Pro transaction is then broadcast to the Bitcoin network where “miners” verify that Connor’s keys are able to access the inputs (the address from where he withdrew his BTC) he claims to control. This process is known as “mining” because it requires resource intensive computational labor and actually rewards miners in BTC per block solved. The protocol behind mining BTC is dense, but to put it in terms that are easy to digest, mining is a peer-to-peer computer process used to secure and verify BTC transactions. Each group of transactions is called a block. Blocks are secured by BTC miners and build on top of each other forming a chain. Block. Chain. Blockchain. And the blockchain contains a ledger of every single BTC transaction that has ever taken place. While that sounds distressing, there are no names or identities tethered to these transaction blocks. So, if you were to download the entire BTC ledger to your computer, and yes it can be done, you would theoretically be able to track down the transaction record we described above. Pure. Transparency. Blockchain!
This was a refresher on last edition’s BTC transaction., Next week we’ll pickup where we left off and delve further into the process and function of mining.
‘Til next time, fellow traders!