Bitcoin has been there since 2009.I ignored it at first because it was hard to understand, difficult to explain and moreover I thought it was a joke or Ponzi scheme how can this digital crap which I can barely understand have value
Actually, Cryptocurrencies are not very hard to understand we have used similar things before when we were little. Remember How we used to collect Pokemon Tazos and trade them with each other. The Tazo derived its value based on the popularity and scarcity, for example, I can trade Charizard for Pikachu and Bulbasaur as Charizard is more popular than others and its value will increase as scarcity will increase
Cryptocurrency works in similar fashion, peer to peer trade without any third parties. Cryptocurrency derives its value from its usage and value increases according to market principles( demand and supply), today anyone can create a Cryptocurrency for specific goods and services offered. maybe I can create a cryptopandit coin for my readers to view my blog posts
Coming Back to our Pokemon analogy lets say this time I have a digital Pokemon. I transfer my digital Pokemon to you. Now the problem with digital things is that they can be replicated. I can give this digital Pokemon to someone else also and now I have used my Digital Pokemon twice. It is same as using the same 10$ bill in two different shops. this problem in computer science is known as the Double spending problem
This problem can be solved by assigning numbers to digital Pokemon and maintain a record of every Pokemon that is spent .example, now if I send one Pokemon to someone else it will be recorded and this record keeping book is known as ledger in general terms.Double spending problem is solved if we record everything on ledger as I can not spend the same Pokemon that I just gave it to someone else
Problems
There’s a bit of a problem though:
who is going to maintain this ledger and record all the transaction
if a central party maintains it a single point of failure can result in loss of data, government take all the data away from central authority and shut it down
Too much power is given to central party as in traditional banking system
The Solution
This problem was finally solved by an unknown person named as Satoshi Nakamoto when he founded Bitcoin in 2009. This system made sure that you are not able to double spend and you don't need to have one central location Instead everyone participate in this system and have the list of all the transaction happening in the system. whenever a transaction is entered into the system everyone checks if it's correct and hasn't been spent before and after every 10 minutes entire network comes to a consensus about the current state of the ledger, How much one person owns.This system of agreement, trust and consensus is simply known as the Blockchain
Blockchain is not limited to currency creation. we can achieve agreement on other things as well, for example, we can decide the truth of who owns what piece of land or who owns what car, smartphone after every 10 minutes. we can record the ownership of any asset in this open, public, immutable, borderless ledger. currency is just the first application and probably the biggest application but there are many more applications of blockchain that we can't even think of yet
Happy Investing!
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