Find A Bitcoin CFD Broker & Understand The Blockchain

Find a Bitcoin CFD Broker and Understand the Blockchain

Bitcoin (BTC) CFD Trading & Spread Betting
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Bitcoin CFD Trading & Spread Betting

These brokers offer CFD trading or in some cases spread betting (in the UK) of the cryptocurrency Bitcoin (BTC). In both CFD trading and spread betting the trader does not own the cryptocurrency.

CFDs and spread betting allow the trader to speculate on the movement of the value of a market, without owning it. This means they do not need a wallet and can go long or short. CFDs also allow the use of leverage (however cryptocurrencies are extremely volatile and increasing leverage increases risk). A detailed comparison, broker vs broker can also be found on this site.

What is Bitcoin ?

Bitcoin is the original cryptocurrency. While it has had larger aims of being a rival to fiat currencies, it is focused on being a peer-to-peer payment network. This means that someone can make Bitcoin transaction, from their wallet to another wallet. This is easy to understand. But there is no central processing facility to process this or other transactions. So how does this payment occur, without a central processing facility. That happens because of the blockchain protocol utilised by Bitcoin and other cryptocurrencies. The blockchain is implemented as a distributed electronic ledger or database, with a number of Internet based processes operating it.

Why is the blockchain called the 'blockchain' ?

Because it consists of blocks of data cryptographically secured (or chained) together.

Why is the blockchain called an electronic ledger ?

Because it consists of processed transaction data, like any ledger, but processed by machines and software on the Internet and stored in electronic form on it.

Why is the blockchain called a distributed electronic ledger ?

Because it uses the distributed architecture of the Internet allowing multiple communicating processes to run working concurrently on different machines, to enable this data processing.

Does the blockchain consist only of transaction data ?

The blockchain consists of other data, which helps secure and create it. Some other blockchains also include different kinds of data, thus generalising the idea of a blockchain from being a ledger to being a database. But let's look into the blockchain more detail and examine the processes operating it.

Understanding the blockchain

The blockchain is key to understanding cryptocurrencies such as Bitcoin, but it is not so easy to grasp. This is because it is a formed from the Internet and hence from computer programming, using key structures from it. One way of understanding the blockchain is to think about a ledger as it is normally understood. Consider an old fashioned shop. Someone comes in buys something and pays the shopkeeper. The person leaves and the shopkeeper records it in their ledger, and puts the ledger back in its locked box. The blockchain is like this in some ways and in other important ways is not.

Firstly it is a ledger of transactions. It consists of connected blocks of data saved on the Internet, on computing devices (using a fundamental data structure called a linked list, used in the C programming language, in which the Internet was written). These blocks consists of transactions made in a cryptocurrency. Because it exists on computers, it also has a header file, which helps secure it.

The shopkeeper secures their ledger by putting it in the box and locking the box. The header file, which contains a hash (or digital signature) of the previous block, is like that. But how do you know that the ledger is accurate. The shopkeeper might have a made a mistake or have made a wrong entry or might even alter it later. There are systems in place to ensure this does not happen. But it can. The blockchain aims to solve this fundamental problem with centrally stored read/write ledgers.

Firstly it is public, everyone can see the transactions (though some blockchains and other programs add layers of security to public blockchain and private blockchains also exist which require permission to access their network, trading off the power and reach of the Internet for security). Secondly, each block is cryptographically secured. But perhaps even more importantly the people involved in the transaction do not usually make the ledger. The Bitcoin ledger is made by miners who are exepected to have no interest other than making more money from transactions fees and cryptocurrencies generated by the mining process, than it costs them to add the data blocks.

In fact the transaction process is in effect done by computer programs, by software on machines paid for by miners, which has a cost in power used and also equipment. They are also locked into a competitive process with other miners to solve a problem, to allow them to add a block to the chain and get their reward. Finally, there are nodes in the network which verify the work done by miners. Once it is done, the cryptographic security, like the lock on the box, ensures that the data cannot be changed. Technically this is because any change in the data in one block would alter all succeeding blocks (as each block hashes the previous block). So accuracy and continued accuracy is locked into the system.

A blockchain is a type of distributed electronic ledger, but it can be seen that it consists, like a normal ledger, of a number of processes and participants. A key to all this, the action which initiates this process, like the purchase in the shop is someone making a transaction from their Bitcoin wallet, which is then processed by miner and added to the blockchain.

Unlike the paper ledger, multiple copies of the blockchain exist as well, on what are termed full nodes (these nodes validate transactions and blocks, checking them against a set of rules). The nodes are key to the distributed nature of the blockchain, as they reflect another fundamental programming and Internet structure, that is distributed processing, where problems can be solved and shared by computers working concurrently. Even more fundamental is the idea of a network, which is the foundation of the Internet itself, with connected and communicating devices.

All these processes have a cost and various blockchains have been formed to try and alleviate specific problems, some forked from the Bitcoin blockchain. It can perhaps be seen that a way to potentially increase the speed at which transactions are verified, is to increase the size of the blocks of data, and this has been done. It can also be seen that adding layers to specialise some of the data processing performed on the blockchain could also be another approach, and this has and is being done as well. Another approach is to increase the rate at which blocks are processed, as this is not only a function of the size of the blocks, but is set in the processing system.

While Bitcoin can have real time transaction settlement times from around 30 minutes upwards, depending on the congestion of the network, while this is not as fast as a credit card, which settles instantly, it is relatively fast. Because Bitcoin is also not as fast as some blockchain implementations it needs to be considered that this is not necessarily a drawback, depending on what it is used for. For some purposes settlement must be rapid, and other blockchains have been developed that can make use of technology to make this possible. Finally it can be noted that it is possible to have this kind of ledger and not use a linked list.

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