Not many things shook the world quite as much as Bitcoin in 2017. A commodity valued at $985 at the start of 2017 multiplied fifteen- fold to end the year at roughly $15,000. How did this happen? Should I also purchase it? More importantly;What in God’s name is a Bitcoin?! These are the few questions I’ll touch upon in this blog.
What is a Bitcoin?
Now the Wikipedia defines Bitcoin as the following:
“Bitcoin (₿) is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator. The system works as a peer-to-peer network, in which transactions take place between users directly, without an intermediary.”
Now that is a lot of information to take at once. So now, let’s break it down and understand it bit by bit.
Just as US Dollar, Euro or Indian Rupee, Bitcoin is a currency. Now the main difference between the traditional currencies we know and Bitcoin is the fact that Bitcoin is a completely ‘digital currency’ which uses cryptographic algorithms to make transaction, hence the term, ‘cryptocurrency’. There are no physical notes or coins of any denomination. Moreover, the other major difference lies in the fact that unlike the traditional currencies (USD, EUR, INR) which are minted and controlled by the governments of the respective countries, Bitcoin is not minted or controlled by any financial institution, hence ‘decentralized’. Now here is where the understanding gets a bit tricky. Let’s try to de-mystify it a bit more in the next paragraph.
How does it work?
To understand how Bitcoin works let’s relate it to a real-life situation. Consider you live with your 4 roommates. Now let’s imagine that this is the year 2000, when the most advanced thing that you could do on your phone was to play space impact. Since it is not always convenient to make immediate transactions of money, you keep with yourself a piece of paper on which you note down all the transactions. For example, you owe your roommate Andy Rs 500, so you write on a paper, “I give Andy Rs.500”. But since Andy is someone who knows you only for a few weeks, he doesn’t completely trust you, he takes a piece of paper and writes the same thing on it, “Carl (You) pays Andy Rs.500. You both show each other your ledgers to check if they match. Likewise, with every transaction, both of you update your ledgers and show them to each other. Now, since you have other roommates too, maintaining different ledgers for different roommates can become a hassle. So, you decide that from now on if any roommate makes a transaction with any other roommate, that transaction will be recorded in everyone’s ledger. This way at the end of the day you will have five identical ledgers with five individuals. Everyone here gets a transparent picture of everyone’s transactions and no one can cheat the other person just by manipulating his ledger. When this goes on for a few weeks you will end up needing many more pages or maybe a notebook. This is exactly how the Bitcoin transactions work. When person A sends makes a transaction in bitcoins with person B, he notes that down in his personal ledger. For example “A sends 5 bitcoins to B”. This transaction is then updated or synced with ledgers of all the people in the network. This way neither person A nor person B can manipulate their ledgers for their personal gains. The pieces of papers mentioned are nothing but ‘blocks’ of transactions and the notebook here is the ‘blockchain’.
How do I get a bitcoin?
Now the most obvious question that arises is, ‘how are the transactions getting synced?’. This activity is performed by people who are known as ‘Miners’. These people own a computer with a very powerful processor. They use certain algorithms known as ’hashing algorithms’ to perform the activity. In return, they are compensated with … you guessed it right BITCOINS. This is how each and every bitcoin present in the system is created.
So, if you want a bitcoin and you already have a powerful computer, Viola! you too can become a miner and mint your own bitcoins. But if you do not want a huge electricity bill ( these bitcoin minting machines need to work 24X7) or do not possess such a high-end machine, you can always ‘buy’ a bitcoin. Just as other currencies are bought and sold, so Bitcoins too can be bought and sold online.
Great Priyansh! I think I should also get into trading Bitcoins ASAP!!
To which I’ll just say one word “CAUTION”.
Although, it is true that the value of Bitcoin multiplied fifteen-fold in the year 2017, the value also crashed from $15000 in January to $6500 in April. Since it is completely decentralized, there is no one who would be able to resolve any of your complaints or greviences. But if you are a daredevil and an optimist, you can open an account in wallets such as coinbase which would let you buy and trade bitcoins.
In order to stay updated on the developments in the field of cryptocurrency visit cryproconversation.com and visit the Youtube channel Crypto Conversation.
Author- Priyansh Srivastava
B.Tech .blockchain Enthusiast.