Title Ad

Latest

Introducing Bitcoin: the digital currency that's taking the world by storm!

Bitcoin: how to get started with this new digital currency | Bitcoin: everything you need to know

What is Bitcoin, and how does it work
What is Bitcoin, and how does it work?

Introduction:

Can you imagine a thing the value of Bitcoin was zero around ten years back and today; its value has touched almost 25 lakhs. It has recently touched its all time high price around 47 lakhs. So, what is the Bitcoin actually and what’s its history? I try to explain it in easiest way to understand easily for less educated people also.

What is Bitcoin, and how does it work? | History of Bitcoin

Merely 12 years ago on 31st October, 2008 a person named Satoshi Nakamoto published a paper on the Internet. Satoshi's main motive was clearly evident from the first line of the paper. A version of electronic cash would allow payments to be sent directly from one party to another party, without going through a financial institution. Crypto currency is a digital asset over which central banks or financial institutions have no control or regulation for instance.

The US dollar is controlled by the central bank of US and the Indian Rupee is controlled by the RBI. But there is no central bank or any main financial institution that controls the bitcoins or crypto currencies. Crypto currency was merely an idea in the mind of that person. But now there is trading worth lakhs and crores on its crypto exchange. Just like shares are traded on the normal stock markets.

In order to understand the paper of Satoshi and the context of Crypto currency; we would have to understand some concepts of our economic history that our financial systems are based on trust. The currency notes and coins have value in our society, because they are guaranteed by the government and the central bank.

Take a look of an example to understand this financial system. If we look at the 100 hundred rupee note; here mentioned that "I promise to pay the bearer a sum of 100 hundred rupees." This is a promise made by the governor of the central bank that is our Reserve Bank.

There is governor signature right below on this note. Without this promise/guarantee there is no value of this note. Note will be reduced to an ordinary paper if it does not carry this signature. But there is no central bank or any main financial institution that controls the bitcoins or crypto currencies.

 

What’s the Aim of Bitcoin or Crypto Currency?

There is a small but interesting fact in this context that after the Second World War, America became the most powerful country in the world and the rest of the countries had to align their currency with the US dollar.  Then question raise in our mind that what was the US dollar aligned with or guaranteed by? And answer is a reserve of gold. The actual value is that of gold or silver; but it is not practical to carry gold or silver around in pocket. Then the currency notes were printed for convenience.

United State did away with this gold standard rule back in 1971. After that the central banks of the rest of the countries could print their notes as per their wishes. Now question arising here that will cryptocurrencies and Bitcoin have to do with this? It helps us to guess how powerful the government and the banks. Specially the central banks of the country are as far as monetary policy is concerned.

More you like to read:

 

Bitcoin as an Alternate Financial System | Bitcoin: how to get started with this new digital currency

The fact of the matter is that when we deposit our money in the banks, we give the banks permission to play with that money. In one sense making use of these deposits, the banks give loans to companies and individuals. This is what fetches returns that is interest on the money that you have deposited very recently.

We have seen that these banks use our savings and deposits in a very irresponsible manner. It happens quite often that banks give loans to big industrialists without performing adequate checks. And then these loans become bad debts/NPAs and Depositors like us becomes the victim in such cases.

Decisions of the government can put the common man in danger Do you remember November, 2016? Demonetization! The government laid to waste the 500 and 1000 notes in one single strike 86% of Indian currency. It became unusable those in favor of the Bitcoins and crypto currencies. So, they do not want the government or the central banks to exercise so much control over their money or currency.

You may now understand the original idea/vision of Satoshi. He imagined that Bitcoin as an alternate financial system. Which would be based on software technology and would be outside the control of third parties?

We might be able to recall the Global Economic Meltdown of 2008. Mega investment bankers like Lehman brothers had become bankrupt Crypto currencies were born right after this scenario. Bitcoin was the first to arrive and then after many other crypto currencies surfaced Ethereum, Litecoin and Ripple. In fact, in the beginning of the year, more than 2000 crypto currencies were available on the internet.

 

How does Crypto- Technology Work? | How to buy Bitcoin

There is one public account in digital form of all the Bitcoin transactions; this is called a 'ledger'. A copy of this ledger exists on all the systems that are a part of the Bitcoin networks. Those that run these systems are called 'Miners'. The job of the miners is to verify transactions. For an example, Mr. A has to transfer 5 Bitcoins to Mr. B's account; Miners will have to confirm whether Mr. A is actually does have 5 Bitcoins in his account or not to complete the transaction, miners will have to solve a complicated mathematical equation.

Every Bitcoin transaction has a unique variable; the job of the miners is to calculate it. All these calculations are carried out on the computers automatically. Because they are extremely complicated and their combinations run in crores, which is why these miners require computers with very complex and high processing power?

Once the equation is solved then the other computers within the network confirm it. After these transactions are added to the chain then block of transactions gets created and hence, the technology is called “Blockchain”. Miners get in exchange for this the most valuable thing- Bitcoins! This system is called “Proof of work”. The miners have to prove the computation work they do in order to get awarded the Bitcoins in return.

 

How to use Bitcoins and Other Crypto currency?

Some people use Bitcoins as an investment; while on the other hand some people use crypto currency as an alternate currency. A lot of people want to replace it with currency and use Bitcoins in place of rupees and dollars. But the main use of crypto currency at present is like an investment.

We invest money in crypto currency hoping for a higher return in the future. Hence we get more money in return this then becomes a "store of value". Just like gold that we don't use gold in our daily transactions; but instead buy it and store it in the bank lockers. For a guarantee to get more returns in the future because the price of gold keeps rising gradually. Exactly people do the same with Bitcoins and other crypto currency; this is why Bitcoins are also called "Digital Gold".

As like any other investment this has also entails risks. Those who criticize this as a form of investment say that Bitcoin is a digital currency. It has no inherent value of its own. For example, we can physically touch the gold in our hands; if we buy a house as an investment it will be physically available to us. But Bitcoins on the other hand are not physical.

Everything is happening on the computer. It could still be referred to as a "niche product". It does not have a wide spread acceptance in the society. Crypto currency is not yet a medium of exchange in India. We cannot go to the nearby shops and buy bread or other regular use things with Bitcoins. But this trend might change in the future because there are several restaurants and hotels in the Western countries. So, those have begun to accept Bitcoins as an alternative form of payment.

There is a technical challenge here that makes it difficult to use Bitcoins as a medium of in daily transactions. The Bitcoin transactions on the block chain take time to get confirmed. One block process takes around 10 minutes for the computers to calculate. So, we can understand that it is not practical to wait about 10 minutes, for a transaction to get completed in daily life but at the same time.

There are some present day use cases for Bitcoins where they work better than our traditional ways. The best example of this is our Foreign Funds transfer. When we have to transfer money from one country to another than the banks has deducted a lump sum amount on the name of foreign transfer fees.

They charge a lot of fees and take a lot of time to transfer money from one country to another. But the Bitcoins are more economical in this case, Bitcoins do not charge any transfer fees and ten minutes. It is a much lesser time as compared to the 1 to 2 days that the banks take a similar thing applies to the credit card fees.

Crypto currency can be more economical than credit card fees; this is why banks, credit card companies and remittance companies have been against the crypto currencies. So, even today crypto currency can become a rival to their business model in the last few months. Specially due to the Covid pandemic situations have changed.

 

Will we be Able to Buy Things from Our Nearby Shops with Bitcoin in the Future? | Future of Bitcoin

Crypto currencies and Bitcoins could play an important role in the future of finance. It remains to be seen whether cryptocurrency can become a medium of exchange. It will be a subject to widespread use or will it remain a store of value investment. 

After read this article, lastly have raising a question in your mind that will we be able to buy bread and other things from our nearby shops with Bitcoins in the future? Or will it not be possible? My answer is; that day might be very far, but it cannot be ruled out as impossible that easily.

 

Conclusion:

Crypto currency price will fluctuating like shares, it's not stable, may some time goes up and some time down. so if you read this article after a month ot a year than mentioned price of one Bitcoin differ from this article. Hopefully you would like this educational article, please share this article to your friends and family. If have any questions than comment below. Never forget to follow our blog for new updates. Subscribe Million-$-Knowledge to get more articles like this.

 

Download What is Bitcoin, and how does it work? Click Here


Read Also:


Thank You!

Million-$-Knowledge