What if a technological innovation allowed anyone in the world to be their bank, to create a currency free from taxes and banking fees? Does this sound believable? Well, Cryptocurrency holds the potential. What the internet did for information, cryptocurrency can do for money. Could it be the new gold? No, you have to stretch your imagination to infer what the intrinsic value of crypto is.
Is crypto the currency of the future, a godsend for criminals, or a recipe for financial disaster? Let's know.
People have a mythology of money that is based on very little fact and one of the nice things about bitcoin is that it forces people to start to ask questions about the fundamentals of money. Cryptocurrency is an attempt to adapt the advanced computerized system that we have- the internet, to resurrect what money used to be all about.
A cryptocurrency is a medium of exchange that is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds. Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology was invented. It is the most well-known and established cryptocurrency. This gives it a higher level of trust and stability than many other cryptocurrencies. This makes it more likely that Bitcoin will continue to be used in the future.
Bitcoin invented in secret, it was a gift to the world. It's not just the currency but its programmable money. It's like transforming all your currency, be it dollars, rupees, or yen, into ones and zeroes. It is an open-source software protocol like much of the code supporting the internet and email. Open-source means anyone and everyone can use the protocol. No one person or company can control it. Every change to the software is public, open and transparent.
The code was first developed by Satoshi Nakamoto. To know who Satoshi is is part of the mystique of the story. It's completely irrelevant to the functioning of Bitcoin. Bitcoin is a system based on mathematical truths and these mathematical truths stand alone. We can read the source code in bitcoin and understand it. Whether Satoshi Nakamoto is a man, a woman, a collection of individuals, a government agency, or aliens from the future, the technology remains true. Then there were dozens, now hundreds of programmers constantly collaborating to improve bitcoin's features and security.
But what makes bitcoin a breakthrough? In our traditional mindset, it's very important to know who is behind this currency because their reputation is significant knowing that our funds and the true wealth are safe. We rely on trusted third parties like banks, and credit card companies because they keep track of money as it moves from one account to another and they charge us handsomely for it. We trust that their digital ledgers of credits and debits balance. How do we know that what we're receiving can be trusted?
The answer is at the core of Satoshi's invention. It's a financial system that cuts out these middlemen and could be faster cheaper and more secure. It tackles the ancient human dilemma and solves a computer science problem.
A bitcoin is not a file on a computer. It's an entry in the publicly distributed database called the blockchain. Just as the Medici kept a ledger of credits and debits, today's banks record each transaction as a plus and minus in their ledgers. Now we call them databases.
Now, look it as bank accounts that are replaced by a digital wallet that you alone control. Bitcoin's ledger is the blockchain. It's a record of every bitcoin in existence and every bitcoin transaction ever made. It always balances because no bitcoin ever leaves it. When a bitcoin is sent from one digital wallet to another, what they are really sending is control over that part of the database code that is a unique key for the new owner.
But since bitcoin is digital, any shared information or data can be flawed or corrupted and anything can be faked just like music and movies can be easily pirated, copied, or stolen. How can it retain value if anyone can make a million copies?
As the network processes transactions, it constantly synchronizes the one ledger across the global network. Each computer or bitcoin miner has a complete and identical copy. And because the blockchain is public, it cannot be controlled by anyone person or computer. Owners of the bitcoin mining computers are rewarded with new bitcoins for processing transactions and keeping the network secure.
Today, the combined computing power of this global network is greater than the 500 biggest supercomputers combined and because every transaction is verified and recorded by the network, a bitcoin cannot be forged. Satoshi developed the technology in a way that only 21 million bitcoins are in existence out of which 2.13 million are left to be mined. This digital currency cannot be debased with cheap metals or printed by the billion at will.
Nobody really knows how many dollars are in existence. Ben Bernanke created several trillions of dollars over the last several years but nobody really knows where they landed. At any time for any reason the central banks can print as much money as they want and they call it fancy things like quantitative easing but when they do that, it makes the dollars or euros or yen that you and I have worthless.
So obviously, a better financial system is needed. But are people ready to accept the new technology yet or would cryptocurrency just be a way to speculate on the market? The bankers at least understand that the technology is something that has to be taken seriously but is the government ready to break all its grip on the money supply? I have all your answers. Wait for the last blog of this series. I would also focus on the swap system and the difference between crypto and other digital platforms like Paytm. Till then, Happy Reading :)
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