Decentralization
You may have heard that Bitcoin is decentralized. But what does this exactly mean? A decentralized structure does not depend on a third party to function. Think of downloading via torrents. Or maybe you even remember Limewire? With these applications, a direct connection was established between both users, there was no third party involved. This is also known as peer-to-peer (or user-to-user).
With a central structure you are dependent on a third party. Consider, for example, the banks. To make a transaction from person A to person B, cooperation with a bank is required. You are therefore dependent on a third party (for example Goldman Sachs or Bank of America (BAC)) to realize such transactions.
Now that you understand what these terms mean, it is important to know that Bitcoin is decentralized. Thus, network workloads (e.g. transactions) are spread across multiple machines without relying on a single central server. This is called ‘decentralised’. This means that all machines together ensure that a transaction is approved. So if 1 machine is hacked or fails, the transaction can continue without any (security) problems. This is also one of the reasons Bitcoin has never been hacked.
Blockchain
Blockchain technology has been called the greatest invention after the internet, but what is it exactly? A blockchain is a type of database in which information can be stored. You can think of it as small blocks of information that are added to a long chain. Each new block that is added contains information about the previous and current block (such as time, price, wallet address, etc.). If the old and new block do not match, it will not be connected to the chain.
How does blockchain work
This chain is therefore getting longer and can never be adjusted again. Every transaction is saved forever. This is why this technology can be used to carry out transactions. The advantage of a blockchain is that every transaction that has ever been made can be traced back forever, and cannot be undone in any way. With a blockchain it is therefore possible to permanently record a transaction, without the need for a third party.
Wallets
If you are starting out trading, buying or selling cryptocurrency, you have undoubtedly encountered a wallet. A cryptocurrency wallet is a kind of bank account where digital currency can be stored (think of Bitcoin and Ethereum for example). There are different types of wallets, namely hardware and software wallets:
A hardware wallet is a physical USB that you can connect to your computer. Since these wallets are not directly connected to the internet, they are a lot more secure. The disadvantage of a hardware wallet is that they can be quite pricey, and must always be kept safe.
A software wallet is a program that you can install on a computer or phone. This makes it possible to store cryptocurrencies on your personal devices.