Bitcoin, Its Wallets, And the Blockchain

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A significant figure in the Bitcoin and blockchain space is Andreas Antonopoulos. He is an engineer and pioneer. He has been around for quite a while and even watched the internet come into its own as it became widely adopted and used for government, enterprise, and personal activities.

This is about the nitty gritty side of Bitcoin and less about its more conceptual applications. It has long been touted that Bitcoin is only used by terrorists and criminals. Yes, that used to be the case; however, that is rapidly changing as both individuals and institutions begin to understand its application more and more.

Bitcoin is at its core an efficient tool for secure data transfers. The wallet is part of what is really interesting because it is independent of the Bitcoin network and is more secure and has many more advantages than the traditional way of banking and completing mobile payments. Let's take a dive into how this works and what makes Bitcoin such a fantastic financial tool.

Bitcoin Has More Than One Blockchain

It only makes sense that one coin would have one blockchain that it runs on. However, that is not the case. Bitcoin, in fact, has multiple blockchains that all serve specific purposes. One, in particular, is the Bitcoin Test Blockchain. "Bitcoin's Test Blockchains You might be surprised to learn that there is more than one bitcoin blockchain. The "main" bitcoin blockchain, the one created by Satoshi Nakamoto on January 3rd, 2009, the one with the genesis block we studied in this chapter, is called mainnet. There are other bitcoin blockchains that are used for testing purposes: at this time testnet, segnet, and regtest. Let's look at each in turn. Testnet — Bitcoin's Testing Playground Testnet is the name of the test blockchain, network, and currency that is used for testing purposes. The testnet is a fully featured live P2P network, with wallets, test bitcoins (testnet coins), mining, and all the other features of mainnet. There are really only two differences: testnet coins are meant to be worthless and mining difficulty should be low enough that anyone can mine testnet coins relatively easily (keeping them worthless). Any software development that is intended for production use on bitcoin's mainnet should first be tested on testnet with test coins. This protects both the developers from monetary losses due to bugs and the network from unintended behavior due to bugs." - Andreas M. Antonopoulos, Mastering Bitcoin: Programming the Open Blockchain

This is part of what makes Bitcoin and also blockchain such great technology. Because of its open-source nature, anyone from anywhere with an internet connection can learn and study Bitcoin. If they have a different perspective and see something that could be improved or changed to make it better, then they can test it on the Bitcoin's Test Blockchain. This is great because it takes anyone and everyone who has interest or expertise and allows them to test ideas without any barriers to entry.

There are no cultural or national barriers, and literally, anyone can be a part of it if they wish too.

The Bitcoin Wallet

Part of what makes Bitcoin and the wallet so secure is that they are entirely separate from one another. In fact, the wallet can operate on its own without an internet connection, and in a way, it is independent of the blockchain until it has to interact with it to complete a transaction. "The digital keys in a user's wallet are completely independent of the bitcoin protocol and can be generated and managed by the user's wallet software without reference to the blockchain or access to the Internet." - Andreas M. Antonopoulos, Mastering Bitcoin: Unlocking Digital Cryptocurrencies

This is something truly exceptional about Bitcoin. Especially when compared to say mobile banking on an iPhone. With say a chase bank account and mobile app to do anything you have to be connected to the internet and the bank's servers. However, with a Bitcoin wallet, you don't always have to be connected, and you are not relying on one institution.

In fact, with Bitcoin, you are relying on no one. Even when it comes to maintaining balances in wallets, Bitcoin is more efficient and better than any other solution we have seen before. The process of debits and credits between users is entirely decentralized and automated. Moreover, it is transparent. "The concept of a balance is created by the wallet application. The wallet calculates the user's balance by scanning the blockchain and aggregating the value of any UTXO the wallet can spend with the keys it controls. Most" - Andreas M. Antonopoulos, Mastering Bitcoin: Programming the Open Blockchain

However, Bitcoin and especially it's counterpart the wallet do not come without their drawbacks. Firstly Bitcoin wallets are secured with a private "key." This is Bitcoin and its wallets main drawback. This key must stay secret because you can make another one, and if someone gets that key, they can immediately take control and drain the entire account.

There is also no recourse or way to recover a key if it is lost. Should you lose the key, then it is game over, and those funds will be lost forever. In essence, Bitcoin is incredibly secure as long as the key is not lost or stolen.

Bitcoin May Not Be As Anonymous As We Thought

We tend to think that Bitcoin is a way to make completely anonymous transactions. However, Andreas M. Antonopoulos author of Mastering Bitcoin: Unlocking Digital Cryptocurrencies believes that this is in fact, not the case. "Bitcoin is often mistakenly characterized as "anonymous" currency. In fact, it is relatively easy to connect identities to bitcoin addresses and, using big-data analytics, connect addresses to each other to form a comprehensive picture of someone's bitcoin spending habits."

This can often be the case as we continue to explore new technologies. It is bound to have flaws the closer we look at it. However, this takes a lot more energy to accomplish. Essentially it is not perfect but at the end of the day what technology is. However, it is certainly better than making easily trackable payments via a debit or credit card or receiving money through the same methods.

All of these forms of making and receiving payments are monitored and controlled by centralized powers, and at the end of the day, Bitcoin is not. This is why it is so appealing to many and feared by many surveillance states.