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Bitcoin, Cryptocurrency & Blockchain: The Future Or World's Greatest Scam?

Bitcoin is a decentralized currency that exists digitally as computer code. It was created under the pseudonym Satoshi Nakamoto and till date remains a history whether its creator is an individual or a group of individuals. It remains the best-known cryptocurrency.


Cryptocurrency is a medium of bitcoin exchange to ensure the security of transactions. It has no physical counterpart and only exists virtually.


Blockchain is the technology that enables the existence of cryptocurrencies operating across vast computer networks. It has multiple uses and is not only limited to bitcoin and crypto.


Surveys show that only 1 out of 10 people knows the working of cryptocurrency. 1 out of 3 investors possesses very little knowledge about it.


In the late 1980s emerged a group called cyberpunks. They were a part of the movement against the central authorities like governments spying on people or accessing the information of the public. The group advocated for cryptography- ways to secure communication in the presence of third parties. Cyberpunks saw banks as the central institution with the power to print as much money as possible.


In 2008, a major global financial crisis unfolded that had its roots in the risky lendings from banks. It leads to the collapse of one of the biggest banks in the United States. During this time, a white paper titled Bitcoin- A Peer to Peer Electronic Cash System began circulating on a mailing list, written by someone under the pseudonym Satoshi Nakamoto.


This nine-page manifesto was a blueprint of what Nakamoto described as a purely peer-to-peer electronic cash that would allow payments directly from one party to another without going through a financial institution.


Nakamoto laid out a framework using mathematics, computer science, and cryptography to create a currency that could be used in transactions eliminating the need for a central authority. Trust was the problem that bitcoin set out to solve.


Understanding blockchain is critical to deciphering the working of bitcoin. For instance, a  bank can make sure that somebody with only fifty dollars in their account cannot spend more than that. As opposed to it, bitcoin is decentralized. Instead of a central authority owning the ledger that records all bitcoin transactions, it gets distributed amongst all the other computers or nodes in the bitcoin network. Anyone can join the bitcoin network by simply downloading its software. Each time a transaction is made on the ledger, every computer on the network attempts to verify whether this transaction is legitimate by solving complex algorithms. When the network receives a consensus of the transaction's validity, it gets permanently stored on the ledger. If a single node attempts on the network attempts to validate an incorrect transaction, all the other nodes will reject it.


After a certain amount of transactions, a new ledger gets created. It contains a type of code linked with the previous one. It explains the entire mechanism of blockchain technology. No public identities get used while transacting on the bitcoin blockchain. The individuals have both a public and a private key. The private key is used for digital signature while the public verifies the signature without revealing the private key. This process of validating signatures on the bitcoin network is called mining.


Bitcoin allows users to see every single transaction without being able to alter or change the records.


Bitcoin came into circulation in 2009. Its early adopters include the members of cyberpunk and the ones who mined it just for a hobby. In 2010, a man  Lazlo Honyats created an online discussion forum offering 10,000 bitcoins for two pizzas worth $25.Two days later, he reported that he had successfully traded bitcoins for a pizza. It was the very first transaction using bitcoins to purchase a tangible item. 22 May, officially dubbed Bitcoin Pizza Day. The very first bitcoin exchange Mount Gox set up.


In 2011, bitcoin reached a price of $1. Suddenly, other cryptocurrencies began to emerge. These are known as altcoins and aim to solve individual problems by altering bitcoins. Currently, there are more than 4000 cryptocurrencies. The main reason behind their emergence is the open-source software that allows anyone to create cryptocurrencies.


Dogecoin went into circulation as a meme. Its inception was on the fact that people would invest in anything. Now, it is worth $50 billion.


The use of private and public keys allowed for anonymity that made it a perfect prey to criminals and illegal trading. SilkRoad was a notorious website on the dark web which traded in illegals substances using bitcoins. Another significant scandal was the collapse of Mount Gox amid allegations of theft. These scandals have sabotaged the reputation of bitcoin.


There are other cumbersome problems associated with bitcoin. Bitcoin transactions are irreversible. Its prices are subject to fluctuations, driven by demand and supply. Albeit, bitcoin trading is secure digital wallets containing the passwords stored in phones and computers that are easily hackable.


The UK is working to build its cryptocurrency called bitcoin. Russia and India do not recognize it as legal tender. China has called it an alternative investment.


Around 7 million Indians invested $1 billion into cryptos while the Government of India has still not legalized its trading. However, the government has made it mandatory for companies to disclose trading and investments in cryptocurrencies in a financial year. It marks the first step of the regularisation of cryptocurrency in India.


El Salvador has become the first country to recognize bitcoin as a legal tender. Japan has also declared it valid for the payment of goods.


The regularisation of Bitcoin as a payment mechanism needs technological improvements in its ecosystem. Bitcoin blockchain technology should manage the traffic load of millions of transactions in a short time. Experts predict the bitcoin will rise to $100,000 by the end of 2021.


Its volatility makes it no less than a gamble. Therefore, it is imperative to evaluate the pros and cons of bitcoin before investing.


 


Photo Courtesy:Istock


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