Cryptocurrency and Blockchain Technology: Summary Notes
1. Introduction to Cryptocurrency and Blockchain Technology
Cryptocurrency is a form of digital or virtual currency that uses cryptography for
security, making it nearly impossible to counterfeit or double-spend. The
underlying technology enabling cryptocurrency is blockchain, a decentralized
digital ledger that records transactions across multiple computers.
2. Key Components of Blockchain Technology
a. Decentralization
Definition: Unlike traditional banking systems controlled by a central
authority (e.g., a government or bank), blockchain operates on a
decentralized network, where no single entity has control.
Benefits: Increased transparency, reduced risk of fraud, and elimination of
middlemen in financial transactions.
b. Distributed Ledger Technology (DLT)
Definition: Blockchain is a type of distributed ledger where data is stored
across multiple locations (nodes) in a network.
Benefits: Transactions are recorded in a way that is immutable (cannot be
changed or deleted), which increases trust and security.
c. Cryptographic Security
Definition: Blockchain uses cryptography to secure data and protect
transaction records.
How It Works: Data is encrypted and verified through a consensus
mechanism, ensuring that only valid transactions are added to the
blockchain.
d. Consensus Mechanisms
, Definition: Blockchain networks rely on consensus mechanisms to validate
transactions. These mechanisms ensure agreement among participants.
Examples:
o Proof of Work (PoW): Used by Bitcoin, where miners solve complex
mathematical problems to validate transactions and add them to the
blockchain.
o Proof of Stake (PoS): Used by Ethereum 2.0, where validators are
chosen based on the amount of cryptocurrency they hold (or stake).
Benefits: Prevents double-spending and ensures the integrity of the
blockchain.
3. Overview of Cryptocurrency
a. Bitcoin
Launched: 2009 by an anonymous entity known as Satoshi Nakamoto.
Purpose: Digital currency for peer-to-peer transactions without the need for
intermediaries like banks.
Features: Limited supply of 21 million bitcoins, which makes it
deflationary. Based on Proof of Work consensus.
b. Ethereum
Launched: 2015 by Vitalik Buterin.
Key Difference: Unlike Bitcoin, Ethereum is a platform that allows
developers to build decentralized applications (dApps) and smart contracts.
Smart Contracts: Self-executing contracts with the terms of the agreement
directly written into code.
Ethereum 2.0: Transition from Proof of Work to Proof of Stake to improve
scalability and reduce energy consumption.
c. Altcoins
Definition: Any cryptocurrency that is not Bitcoin (e.g., Litecoin, Ripple,
Cardano).
Purpose: Some altcoins improve on Bitcoin's limitations (e.g., faster
transaction speeds, lower fees) or serve niche purposes (e.g., privacy coins
like Monero).
1. Introduction to Cryptocurrency and Blockchain Technology
Cryptocurrency is a form of digital or virtual currency that uses cryptography for
security, making it nearly impossible to counterfeit or double-spend. The
underlying technology enabling cryptocurrency is blockchain, a decentralized
digital ledger that records transactions across multiple computers.
2. Key Components of Blockchain Technology
a. Decentralization
Definition: Unlike traditional banking systems controlled by a central
authority (e.g., a government or bank), blockchain operates on a
decentralized network, where no single entity has control.
Benefits: Increased transparency, reduced risk of fraud, and elimination of
middlemen in financial transactions.
b. Distributed Ledger Technology (DLT)
Definition: Blockchain is a type of distributed ledger where data is stored
across multiple locations (nodes) in a network.
Benefits: Transactions are recorded in a way that is immutable (cannot be
changed or deleted), which increases trust and security.
c. Cryptographic Security
Definition: Blockchain uses cryptography to secure data and protect
transaction records.
How It Works: Data is encrypted and verified through a consensus
mechanism, ensuring that only valid transactions are added to the
blockchain.
d. Consensus Mechanisms
, Definition: Blockchain networks rely on consensus mechanisms to validate
transactions. These mechanisms ensure agreement among participants.
Examples:
o Proof of Work (PoW): Used by Bitcoin, where miners solve complex
mathematical problems to validate transactions and add them to the
blockchain.
o Proof of Stake (PoS): Used by Ethereum 2.0, where validators are
chosen based on the amount of cryptocurrency they hold (or stake).
Benefits: Prevents double-spending and ensures the integrity of the
blockchain.
3. Overview of Cryptocurrency
a. Bitcoin
Launched: 2009 by an anonymous entity known as Satoshi Nakamoto.
Purpose: Digital currency for peer-to-peer transactions without the need for
intermediaries like banks.
Features: Limited supply of 21 million bitcoins, which makes it
deflationary. Based on Proof of Work consensus.
b. Ethereum
Launched: 2015 by Vitalik Buterin.
Key Difference: Unlike Bitcoin, Ethereum is a platform that allows
developers to build decentralized applications (dApps) and smart contracts.
Smart Contracts: Self-executing contracts with the terms of the agreement
directly written into code.
Ethereum 2.0: Transition from Proof of Work to Proof of Stake to improve
scalability and reduce energy consumption.
c. Altcoins
Definition: Any cryptocurrency that is not Bitcoin (e.g., Litecoin, Ripple,
Cardano).
Purpose: Some altcoins improve on Bitcoin's limitations (e.g., faster
transaction speeds, lower fees) or serve niche purposes (e.g., privacy coins
like Monero).
