Cryptocurrency has taken the world by storm. From US to UK to Australia, it is known by names like BITCOIN, ETHEREUM, LITECOIN etc. launched by several entrepreneurs of the 21st century colloquially called “digi-preneurs”. Today, there is not a single place where Cryptocurrency has not been ruling over the hearts of the people as well as the News Circles.
Bitcoin cryptocurrency – Meaning, Trading, Mining, Exchange, Charts, Prices, List 
But what is Cryptocurrency? What is so special about it that has made it so popular and in hot demand that every Indian desirous to have one needs to shell out more than Rs.4 lakh plus if one follows the current BITCOIN exchange rate. What is BITCOIN? ETHEREUM? – these are some of the questions you’ll be having in mind. We’ll answer them first by explaining what is cryptocurrency and then explaining its function keeping BITCOIN as example followed by brief description on other brands of cryptocurrencies like ETHEREUM and LITECOIN.
Cryptocurrency is a digital asset working as a medium of exchange through use of cryptography to maintain verification of transactions as opposed to Centralised Banking system currently used in world which requires approval of third parties to approve the transactions. It’s profile as an Inflation proof currency is attributed to its characteristics of being a free medium of exchange requiring no intermediary, no regulation from Government Authorities.
BITCOIN is one such brand of cryptocurrency called by some as an open source version of digital currency just like LINUX in OS computing circles which has no direct ownership but whose network is maintained by a batch of developers. Its creation inspired creation of competitors like LITECOIN and ETHEREUM.
The story begins way back in the 1990s when an enigmatic yet introverted person named Satoshi Nakamoto introduced a concept on Decentralized Currency System as part of his thesis titled “Bitcoin: A Peer to Peer Electronic Cash System”.
Back then, there were numerous attempts made at creating a digital cash system using which a buyer and seller can complete transactions amongst themselves without intervention of a third party, just like the Paytm Wallet app we use today for the same purpose today. Early Efforts by Wei Dai through his ‘b-money’ initiative and Nick Szabo’s ‘bit gold’ proved unsuccessful and filled with errors before Nakamoto came into the picture. The Catch was: “How to prevent double spending? And Who would look after the transactions verification in case of decentralized system”.
While centralized systems involve the role of Central Bank for maintaining and approving transactions. In a decentralized network, registered peers are entrusted with the task of maintain records of transactions conducted in the network. These peers can be considered as expert developers trained in IT domains who keep track of bitcoin transactions and accordingly set prices for the same.
There was a need of consensus amongst peers looking after the network to avoid the factor of double spending or bogus transactions which was covered through the concept of hash function sent over a 256 bit algorithm signed using public key cryptography. This system gave the birth of cryptocurrencies.
What is Blockchain ?
As name suggests this technology works on creation of small blocks those create a chain of many blocks when placed one after another to execute a particular transaction:
Each block typically contains a cryptographic hash of the previous block, a timestamp, and transaction data:
The fundamental chain (dark) comprises of the longest arrangement of squares from the beginning square (green) to the present square. Vagrant squares (purple) exist outside of the principle chain.
In 2008,The principal blockchain was conceptualized by a man known as Satoshi Nakamoto . It was executed the next year by Nakamoto as a center segment of the cryptographic money bitcoin, where it fills in as people in general record for all exchanges on the system. Using a blockchain, bitcoin turned into the primary computerized cash to take care of the twofold spending issue without requiring a confided in specialist and has been the motivation for some extra applications.
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What is Bitcoin?
Bitcoin is the world’s first digital money, a type of electronic money. It is the main decentralized computerized money: the framework was intended to work without a national bank or single manager.
- In easy language Bitcoin is the combination of bits and coin that means it is virtual currency(Bits + Coin=Bitcoin).
- Bitcoin used as similar to debit card and credit card means debit card and credit card only used at where someone already present without shopkeeper we never used similarly bitcoin used at where someone is present to accept this currency online.
- Bitcoin it’s a address,those having Bitcoin they can generate address as email having address similarly Bitcoin have address.
- A Bitcoin address is a solitary utilize token. Like email addresses, you can send bitcoins to a man by sending bitcoins to one of their locations. Be that as it may, not at all like email addresses, individuals have a wide range of Bitcoin addresses and an exceptional address ought to be utilized for every exchange
The first ever BITCOIN cryptocurrency to be dispatched was in 2009 when Nakamoto created the genesis block (block which started the transaction service) which contained the following details: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.The first ever Bitcoin transaction was conducted by Ralph Finney in 2009 who had received 10 coins from Nakamoto.
The BITCOIN valuation on exchanges works using the simple concept of demand and supply. To explain in one line, the abnormally high valuation of each BITCOIN (in India it is Rs.4.5 lakh per BITCOIN) can be attributed to the seriously high demand for BITCOIN amongst the general public as against its seriously restricted supply due to creation at a predictable and decreasing rate.
The demand and supply factor can be best seen in Stock Exchanges like BSE and Dow Jones where stock performance depends on various factors like company performance, its profitability and no of shares being traded in market. Companies like TCS have high value due to their consistent profitability and limited supply of shares.
From the user perspective, its nothing but a mobile app used to send and receive payments from your clients. Behind the scenes, a public ledger called “BLOCKCHAIN” is circulated amongst users which contains details of transactions ever processed. This allows users to verify the validity of their transactions receiving BITCOINS as a reward for their services from the network. The process is called “mining” and the persons called “miners”.
The purpose of mining requires users havingsophisticated computing equipment having sufficient computing power, thereby enabling users to sift through mountains of meta-data and exabytes of output (as Benji Dunn would say from Mission Impossible Film Series).
The BLOCKCHAIN ledger is a unique concept in itself as it forms the crucial component in the entire BITCOIN transaction routine. Each transaction record is linked to one another using a specialised algorithm making it impossible to make changes in any level of transaction unless proof of otherwise was shown. Impressed with this technology, authorities in India like SEBI and TRAI have started projects based on such technology. Simply put, BLOCKCHAIN is to BITCOIN just like Internet is to Email. BLOCKCHAIN’s purpose is transfer of BITCOIN value in a safe, secure and decentralized manner.
Mining helps in securing the neutrality of the network as registered peers having BITCOIN software can help maintain the blockchain ledger thereby disallowing hackers or fraudsters from replacing parts of the BLOCKCHAIN transaction ledger causing losses to other users. The network is monitored 24×7 to ensure secure flow of transactions and less chances of fraud with a real time scanning process conducted every 10 minutes.
Coming to the part of acquiring BITCOINS, these can be acquired in either of the following ways:
- Payment for services as “BITCOIN MINER”.
- Payment for goods and services.
- Purchase BITCOINS from a BITCOIN
- Exchange with friends.
You might be wondering how many BITCOINS are in supply and being traded? Well, the bad news is that BITCOINS will be literally limited in production and will stop being produced once the number reaches 21 billion pieces. With increase in demand, the production is being halved every single year so as to continue with the process as long as possible.
BITCOINS’ digital factor makes it easy to be divided into ‘n’ number of small units and it is that factor that will decide its future once primary production is over.
The debate on use of BITCOIN and cryptocurrencies arose due to the recent revelations by Wikileaks and Edward Snowden about CIA’s tendency to infringe on data privacy making the case of demand of a Govt oversight-free currency way stronger than ever.
The use of BITCOIN has several freedoms. First, being that it can be sent anywhere across the world to persons reqd. Bank holidays not a problem as it does not require intermediary processing charges. Next is the ability to transact without personal information as privacy is being considered a top priority in the network.
But not everything has full positives in the world. The technology is still not fool-proof as it requires scalability and regulation over current registered peers to ensure that unnecessary hacking doesn’t rupture the core. But the underlying technology, BLOCKCHAIN, has potential to be used by future companies in accounting and oversight purposes.
There have been cases in the past where secure use of BITCOIN tech has helped companies build profits as well as otherwise.
Overstock, an E-Commerce company had kept 10% of their earnings in the form of BITCOINS while the rest was instantly converted to dollars. Overstock did this after the company recorded 10x growth post acceptance of BITCOIN method of payment.
Coinrail, a South Korean Exchange firm trading in BITCOINS lost BITCOINS worth 28mn pounds after it was hacked by unscrupulous hackers. Recently, Hackers in Slovenia stole around 9.8 million BITCOINS from a virtual currency exchange called NiceHash.
Another factor which goes against its use is its prevalence without oversight. If BITCOIN fans want it to be a good alternative to money, then it should provide something to them which money can’t which is safety of use and prevention of misuse.
BITCOINS’ non-regulatory characteristic makes it easy to use for violent organisations like Terrorists and Unethical Groups which happens to be one of the reasons why many countries have banned its use or restricted it. Hacks in Slovenia and South Korea are proof to this fact. Recently, RBI issued a circular ordering all Banks in the country to stop accepting or trading in Virtual Currencies else face the risk of cancellation of licence.
Another very important reason is taxation. By personal experience, Taxation on a foreign currency transaction is a pretty nasty business as it requires approval on a consensus. Taxing a Global Currency will be altogether an even trickier task altogether.
Despite its negatives, I think regulation over currency is crucial for global commerce as there is a sense of safety that the use of the object (in this case, BITCOIN) is being regulated by professional bodies and people keeping in mind the overall good of the public at large.
I think constitution of a global body of experts in IT and Finance from different countries for the special purpose of regulating Cryptocurrency trade would definitely solve the problem.
Such technology at the hands of such a recognised body would help solve matters of taxation and misuse of Cryptocurrency by legalising and allowing setup of Virtual Currency Exchanges where such currencies can be traded.
Growth in Cryptocurrency trading could open up opportunities for employment and bring down world poverty by increasing options in currency trade.
BITCOIN might be the most popular, but not the only Cryptocurrency around. Ether is another Cryptocurrency launched in 2014 through a White paper written by 19 year oldVitalikButerin as part of his thesis. The lack of a scripting language for BITCOIN forced Buterin to develop a new scripting language called “Ethereum” through which Ether is traded in virtual currency exchanges.
Unlike BITCOIN, ETHER is acquired through trading in the Ethereum Platform developed specially for this and is obtained simply through verification of transactions by contributors specially in this platform. Even this currency is not hack proof.
In 2016, a hacker tried to steal 50 million $ thanks to a software bug on the platform which forced the currency to be traded in 2 forms: Ethereum and Ethereum Classic. The purpose of this form of platform was not only transfer of money, but also trading in financial instruments.
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LITECOIN is another brand of cryptocurrency which has been termed as quite similar to BITCOIN and works in the same manner as BITCOIN does. It was launched through a GitHub client in 2011 by Charlie Lee, an ex-Google Employee.
ZCASH is another brand created by Wilcox O’Hearn and Matthew Green of John Hopkins University. Unlike in BITCOIN, it allows extra feature of concealing the amount dispatched as well as details of the sender. Launched in 2016, it currently has 10 million coins dispatched and ,like BITCOIN, has plans for supply to be fixed at 21 million coins worldwide.
While there are other brands like DASH which are nothing but versions of BITCOIN created from its source code with added features and identical core functioning.
There have been certain websites stating that Cryptocurrency and Blockchain can help reduce fraud, curb window dressing, help crowdfunding facility, encourage E-Commerce thereby leading to a better world to live in.
The only way to make it possible is through legalising Cryptocurrency use, creating a single global authority to manage its value and educating people on its use. Unless this is done, we can’t expect Cryptocurrency to be in use World over in the near future.
There is also the case of scalability and regulation which needs to be addressed before legalising Cryptocurrency use as technology should be able to keep up with the demands of public else it is doomed to fail.
If used positively, Cryptocurrency can help take us to the next level but if used negatively it can prove to be our downfall.