Ethers And Bitcoins


To be honest, most people have misapprehended Ethereum, Blockchain, Bitcoins, Cryptocurrencies. They may believe that 'blockchain' and 'PoW' has something to do with economics, which is not true. In this article, we will look at some of these mystifying questions and try to resolve them.

What is Blockchain?

Literally, blockchain means a chain of blocks. It's just a line of 'blocks'. Now, what do these 'blocks' have? A block has some data. To be specific, it has four things, namely:
  • The timestamp of the block
  • A reference/address to the previous block in the blockchain
  • A consensus algorithm to validate all transactions
  • Root/master hash(key-value pair) of all transactions in the block

What is a Consensus Algorithm?

A consensus algorithm is an algorithm that keeps data in a distributed ledger throughout a network/blockchain constant for everyone. Literally, consensus means a general agreement. Mainly, this algorithm provides proof to any transaction in a block and thereby deters cyber-attacks such as a denial-of-service attack (DDoS). Some popular consensus algorithms include 'Proof of Work', 'Proof of Stake', 'Proof of Elapsed Time', and 'Proof of Authority'. Among these, Proof-of-Work (PoW) is the most common, which involves solving a difficult computational problem in order to create a new block in the blockchain, which is then rewarded with virtual currency. This is also used in bitcoin mining.

What does 'Decentralized' mean?

Decentralized means that the data in the blockchain is stored on a lot of people's computers, not just one community/person. Basically, the data is very hard or rather impossible to manipulate.

What about Cryptocurrency?

An online/virtual currency has value just because a group of people decides it should have value, sort of like antiques, jewelry, etc. Bitcoin is a cryptocurrency that uses a blockchain. There are many miners who 'mine' blocks to get coins.

What is Ethereum?

Ethereum is a blockchain system mostly used to deploy apps and use a smart set of rules and instructions (smart contracts) that are backed with blockchain techniques. Those who use this computing power to mine blocks are awarded the cryptocurrency 'ether'.