People keep asking me What is Bitcoin? Since Bitcoin is just a type of cryptocurrency and since cryptocurrency is just a type of Blockchain – Future of Cryptocurrencies technology, let me first explain to you what is blockchain technology.
BLOCKCHAIN – FUTURE OF CRYPTOCURRENCIES
Consider a group of 100 people stuck on an island and no way to get out of this island. Now think of these people living happily in this island but with a problem. They don’t have a currency to exchange stuff. One solution is to decide a leader of this community and give him the power to create a currency. Thus leader can create currency. He can distribute and can regulate also. But in future, they may lose trust in him and they have to come up with another idea.
Now they came up with an innovative Idea which does not require any central authority. Something like not central but distributed. They created an infinite length of a piece of paper. Initially, they decided that each of us has 100Rs. So each of them wrote 100Rs against their name on that paper. Something like this.
Bhoomi : 100Rs – Time: 02/11/2017 : 10:15:12
Keyur : 100Rs – TIme: 02/11/2017 : 10:15:12
Ravi : 100Rs – Time: 02/11/2017 : 10:15:12
And so on up to 100, since there are 100 people on this island.
Now if Ravi wants to receive 20Rs from Bhoomi, he has to write that transaction on this list. Something like this:
Bhoomi to Ravi : 20Rs – Current Balance: 80Rs -Time: 02/11/2017:10:16:00 Ravi : 120Rs – Time: 02/11/2017:10:16:00
This way, now onward, if anyone makes a transaction then he has to put that transaction on that list. Thus, In future, bhumi can’t do a transaction of more than 80Rs and Ravi cant spends more than 120Rs until he or she does not receive extra money in future transactions from someone.
This idea seems good. No central authority. But there is a problem with this idea. How to maintain this list? People could be dishonest. Who stopped them from putting wrong transactions on that list.?
Satoshi Nakamoto – the developer of BITCOIN – came up with an innovative solution to this problem – the problem of maintaining this long, forever growing list of transactions. In the real world, the infinite length of a paper is not possible. In the age of fast computers and fast Internet and highly secure cryptography, we don’t need a paper also. Satoshi Nakamoto published a paper named Bitcoin: A Peer-to-Peer Electronic Cash System in which he suggested an algorithm.
Let me explain you the algorithm in easy words. I will try that anyone can understand it without any advance knowledge in mathematics or computer science. According to this algorithm, when one does a transaction, he has to broadcast it on internet. Now there are miners on internet who mines bitcoins. I said earlier in this article that initially everyone gets some money.
In cryptocurrency like bitcoin, coins go to miners. No one gets coins for free. To know more about mining click here. And here is the link of some of biggest miners. These miners listen this broadcasts coming from all the directions. Thousands of transactions every minute. They create a block of transactions that they listen. They give serial numbers to each block. Thus a chain of blocks which keep increasing with time.
As soon as a new block is created, they use their computation power on that block and try to find a number which is called hash number of that block. The more computing power you have, more the probability that you will find that hash number. One who finds this number first, algorithm rewards him few Bitcoins. Here is a good article on one of the biggest mining company in China.
Few years before this amount was 50 BITCOIN.Then 25 BITCOIN. Today this amount is 12.5 BITCOIN. After few years, it will be half of 12.5 bitcoin which is 6.25. Who decides this number? If you have basic knowledge of school-level mathematics then I would strongly suggest this video which explains beautifully the fundamentals of cryptocurrency in less than 30 minutes.
And this is how Cryptocurrency works 🙂 This way we can make the concept of currency decentralized. No central authority.
WHAT IS THE FUTURE OF CRYPTOCURRENCY?
Look at below points:
Cryptocurrency eliminates all of above. Thus It has pros as well as cons like all other technologies. People in the research community of cryptocurrency and blockchain technology think that invention of Blockchain is similar to the invention of electricity in the 18th century. It will bring a huge change in human society. Cryptocurrency is just one application of Blockchain Technology. Do you want to know what are other possible application??? Then have a look at this Ted Talk on youtube. It is less than 15 minutes long.