Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.” – Nassim Taleb, Author, and Risk Analyst

From the start of human civilization, humans developed a different type of payment system. Starting from the barter system to the current banking system. Every system has its own flaws and merits. How about an idea of a system where you have the authority and no one can control your money even the government? Based on a similar idea cryptocurrency works. You might have heard of cryptocurrency before. No? But I’m pretty sure that you have heard of Bitcoin before. Let’s take a closer look at what is a cryptocurrency and how it works?

What Is Cryptocurrency?

Types Of cryptocurrency
Image by Jae Rue from Pixabay

Cryptocurrency is made up of the two words, crypto and currency. Crypto stands for cryptography and currency stands for money. In simple words, Cryptocurrency is a digital currency secured by cryptography which is used for peer to peer transaction. Cryptography is a method of protecting information and communications from a third party with evil intentions. Cryptocurrencies have a layer of security in the form of encryption algorithms and It works on the technology of blockchain, a type of ledger which stores information of transaction with the help of cryptographic hash functions. 

There are many Cryptocurrencies available in the market and every day new Cryptocurrencies are emerging. Litecoins, Ethereum, XRP, Tether are some other famous cryptocurrencies that are currently prevailing in the market. for now, let’s talk about the prevailing one Bitcoins in detail.

What Is Bitcoin?

Bitcoin is credited with being the first decentralized cryptocurrency that came into existence in January 2009 following the housing market crash. It was invented by an unknown person or group of people using the name Satoshi Nakamoto who is not yet verified. Bitcoin is transferred from one party to another using peer to peer connections just like a torrent. But the duplication of bitcoin is nearly impossible because of its working system.

Bitcoin started with the idea of an electronic cash system that would allow payment from one party to another party without going through financial institutions such as banks. There is no regulatory body that decides when to make more bitcoins, keeping track. Bitcoins don’t have a value of their own. But it exists because the two parties are accepting bitcoin as a currency, based on which its value fluctuates. 

Facts About Bitcoins 

1- The Smallest Unit Of Bitcoin is satoshi representing one hundred millionths of a bitcoin.(0.00000001)

2-Ticker symbols used to represent bitcoin are BTC and XBT. The Unicode for bitcoin is ₿.

3- Only 21 Million Bitcoins can be mined worldwide. Once bitcoin miners have mined all the bitcoins, the planet’s supply will essentially be drained out.

4-18.5 bitcoins have already mined. Less than 3 million bitcoins are left only.

Process Of Bitcoin Transcation

Bitcoins, litecoins, and other cryptocurrencies work on the technology of blockchain for the transactions. This is a ledger method in which all the transactions of cryptocurrencies are recorded in the form of mathematical puzzles and algorithms. 

The whole process 

1) First for making a transaction of cryptocurrency, the sender needs to fill in the details of the transaction.

2) Automatically the transaction of cryptocurrencies gets encrypted into algorithm codes and mathematical problems along with the verification of the user’s ID through a private key.

3) Now after the verification of the user’s ID, the encrypted transactions reach the network of miners which they access through a public key.

4) The miner further decodes the puzzles and submit the solutions to the other miners for the verification of the solution which is considered as proof of work.

5) After the verification of more than 50% of miners, the transaction gets verified and recorded.

What Is Bitcoin Mining? Who Are Miners? 

Bitcoin mining
Bitcoin Mining. Image by Лечение Наркомании from Pixabay

You might be wondering If there is no organization for controlling the bitcoins then how bitcoins are produced? Here comes the concept of Bitcoin Mining. Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain. Before adding a block to the blockchain there are complex algorithms to solve. To solve these complex algorithms, Bitcoin miners provide the computation power to the network. These miners have multiple high-end computers working continuously to solve these complex problems. In return, bitcoins are rewarded to these miners. That’s how bitcoins are produced. 

What Are The Advantages Of Bitcoins/Cryptocurrencies? 

Virtual currency

Cryptocurrencies don’t have any physical existence, it means you can neither hold them in your pockets nor in your hands, you can only use them in transactions with other cryptocurrency users. Hence, Cryptocurrencies only exist online.

Decentralized

Cryptocurrencies are completely decentralized, no one has a legal right or authorization over cryptocurrencies. For example, INR currency has a signature of RBI governor on every note which claims that this piece of paper is verified, legalized, and centralized by the government of India but in the case of cryptocurrencies, there is no legal authorization by any government. Thus, they are completely decentralized digital currencies.

Immutable

Cryptocurrency transactions cannot be reversed. Once a transaction occurs on the cryptocurrency network, it is recorded on the blockchain. For it to be reversed, it would mean that most nodes in the blockchain need to be altered, which is an impossible feat to accomplish.

No Third Party Involvement

Since cryptocurrencies are decentralized, hence there is no involvement of any other third party between the transaction of sender and receiver. For example, In cryptocurrencies the details of transactions remain only between you and the other user, no further information is disclosed to any other third party, which makes the transaction less costly and faster.

Secure

 Since the transaction is recorded on a distributed ledger, this means that there is no single point of vulnerability or failure. This makes transactions less susceptible to hacking, bugs, and system failure since information is decentralized on a distributed network.

Trustless

 Cryptocurrency, like Bitcoin, enables a ‘trustless’ system of transactions. The decentralized network means that nobody has to trust anybody else for the network to work. The blockchain can validate any transaction between users.

Fast

The Transactions of bitcoins are very fast in comparison to the current system in case of foreign exchange. It takes around 10 minutes to complete one transaction. And for the current system, it takes around 1-2 days to complete one foreign transaction. But bitcoins are not feasible for normal day to day transactions in shops etc.

Increase in Value & Deflationary

Most cryptocurrencies have a limited supply coded into their protocol, creating a system of scarcity. This makes the existing Bitcoin that is in circulation more attractive and valuable as an asset. 

Disadvantages Of Bitcoins

The strength of Bitcoin is also its weakness. A bitcoin is a virtual currency with a decentralized system. Due to this, bitcoins are used in money laundering and fraud. Bitcoins are used as currency on the dark web for illegal activities. The biggest demerit of Cryptocurrencies is anyone can make their own Cryptocurrencies. Due to this disadvantage, there are several cases of fraud. The biggest scam of Cryptocurrencies was by Dr. Rocha Ignat, worth $15 billion. 

But if we analyze the problem with the existing bank system. There are plenty of problems such as bank fraud, money laundering, etc. So, it is not acceptable to defame bitcoin as a currency of fraud. Cryptocurrency is used in donation, higher education as well as in travel. As a wise man once said,” EVERY COIN HAS TWO SIDES”, so it’s up to us how we use the innovations of technology.

Should You Invest In Bitcoins?

The current value of Bitcoin is $ 17,979.90 dated 12/10/2020. Around 12 years ago bitcoin had a value of almost 0. You might be thinking bitcoin will attain more. But there is no surety that the value of Bitcoin will increase. The value of Bitcoin fluctuates too much. So, no one can predict that either the value will grow or it will take a dip. There is a high risk of trading these cryptocurrencies. Their growth has been able to gain the attention of many speculators. 

According to the Winklevoss brothers, bitcoin will attain the value of $500K in the future. But all these are predictions and it is up to you whether you want to invest or not. It is quite possible that shortly, the bitcoins might have a way for cryptocurrencies to flourish.

Conclusion 

Cryptocurrency is a highly controversial and very risky new asset class. Despite the flaws, bitcoins are still considered tour-de-force in the digital currency. It has provided an alternative currency for the less developed countries and has opened the doors of economic transformation. Facebook is also planning to launch its own cryptocurrency, Libra. Many tech companies are showing interest in cryptocurrency. Cryptocurrency is the future and a perfect replacement for our current financial system. 

Tell me your views on cryptocurrency below.

Hi, Everyone! I'm just a simple guy who just wanted to educate others and help them understand Online Privacy and how to protect it. I'm a climate change activist. I love to talk about climate change and data privacy.

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