What Is BITCOIN & How It Works.....WHY IT IS SO POPULAR !

 Can you imagine a thing the value of which was zero around ten years back and today, it's value has touched almost 15 lakhs! I am talking about BITCOIN, that has recently touched its all time high price point due to which  it is being talked about in the market and the media again.

What Is Bitcoin?

Merely 12 year 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 paper "A version of electronic cash that would allow payments to be sent directly from one party to another party without going through a financial institution" Actually, Cryptocurrency is a digital arrest over which central banks or financial institution have no control or regulation. for instance, the US dollar is controlled by the central  bank of US. The indian currency is controlled by the RBI but there is no central bank or any main financial institution  that controls the bitcoin/cryptocurrencies. Back then, cryptocurrency 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 the traded on the normal stock markets.

In order to understand the paper of Satoshi and the context of cryptocurrency, we will have to understand some concepts of our economic history. 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 look at any notes. for example, a two hundred notes. it reads  " I promise to pay the bearer a sum of 200 hundred rupees". this is a promise made by the governor of the central bank, that is, the reserve bank.there is his signature below,

 This note holds  no value without this promise/guarantee. this note will be reduced to an ordinary paper id it does not carry this signature.

What do cryptocurrencies and bitcoin have to do with this?

It help you to guess how powerful the government  and the banks especially, the central banks of the country are as far as monetary policy is concerned, The fact of the matter is that when you deposit your money in the banks, you give permission to play with that money, In one sense making use of these deposits, the bank gives 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 these savings and deposits in a very irresponsible manner, it happens quite often that banks give loans to big industrialists and without performing adequate checks and then these loans become bad debts/NPAs and who becomes the victim in such cases? Depositors like us. In the last 15 months, three deposit talking institutions have failed-YES BANK, PMC bank and Vilas bank, but even the decision of the government can put the common man in danger. Do you remember november,2016? Demonetization! the govt laid to waste the 500 and 1000 notes in one single strike, 86 percent of indian currency became unusable. those in favour of the bitcoin and cryptocurrencies are so because they do not want the govt or tye central bank, to exercise so much control over their money or currency.

Do you now understand the original idea/vision of Satoshi? Satoshi imagine bitcoin as an alternate financial system which would be based on software technology and would be outside the control of third parties, you might be able to recall the global economic meltdown of 2008, mega investment bankers like Lehman brothers had become bankrupt, after all this cryptocurrencies were born right after this scenario. bitcoin was the first to arrive and then many other cryptocurrencies surfaced-Ethereum, Litecoin and Ripple. In fact, In the beginning of the year 2020,more than 2000 cryptocurrencies were available in the internet.

How Does Crypto-Technology Work ?

If truth be told, in order to understand this, one needs to have knowledge of advanced mathematics and computer science. but if you want to start investment or trading, then basic knowledge would suffice. Let us take the example of Bitcoins, there is one public account in digital form, of all the bitcoin transactions this is called a 'ledger'. A copy of this exists on all the systems that are a part of the bitcoin network and those that run this system are called 'Miners'. the job of the miners is to verify transactions. suppose A has to transfer 2 bitcoin to B's account and miners will have to confirm whether a actually does have 2 bitcoins in his account or not, to complete the transaction, miners will have to solve a complicated mathematical equation and you might also have studied variable back in school. every bitcoin transaction has a unique variable. the job of the miners is to calculate it. it's not that they sit with a pen or paper to solve the equation, all these calculations are carried out on the computer automatically because they are extremely complicated and their combination run in crores which is why these require computers with very complex and high processing power and once the equation is solved, the other computers within the network confirm it and this transaction is added to the chain. A block of transaction gets created. and hence, the technology is called 'block chain' and what do miners get in exchange for this? they get the most valuable thing-bitcoins! and 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. If all this explanation went straight above your head like a bouncer, then do not worry! because understanding the philosophy, vision and future of crypto technology is far more important than understanding the working of crypto technology.

How To Use Crypto Currency And Bitcoins

It is extremely important to understand that as well because no one hand, some people use bitcoin as an investment while on the other hand, some people use cryptocurrency as an alternate currency. A lot of people want to replace it with currency and bitcoins in place of rupees and dollars but the main use of cryptocurrency at present is like an investment. we invest money in cryptocurrency hoping for a higher return in the future and hence get more money in return. this, then becomes a "store of value", just like gold. just like we don't use gold in our daily transactions but instead buy it and store it in the bank lockers like a guarantee to get more returns in the future because the price of gold keeps rising gradually. people do the same with bitcoins and is why bitcoins are also called "Digital Gold"but just like any other investment, this too, entails risks. and 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, you can physically touch the gold in your hands. if you buy a house as an investment, it will be physically available to you on the other hand, bitcoin are not physical. everything is happening on the computer so it could still be referred to as a "niche product" that does not have a widespread acceptance in the society cryptocurrency is not yet a medium of exchange, this is, you cannot go to the nearby shops and buy bread and eggs with bitcoins but this trend might change in the future because there are several restaurants and hotels in the western countries that 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 transaction on the block chain take time to get confirmed.one block process takes around 10 minutes for the computer to calculate so, you can understand that it is not practical to wait for 10 minutes for a transaction to get confirmed in daily life.

But at the same time, there are some present day usecases for bitcoins where  they work better than our traditional ways and the best example of this is our foreign funds transfer when you have to transfer money from one country to another, the banks deduct a lump sum in the name of foreign transfer fees and they charge a lot of fees and take a lot of time to transfer money from one country to another. Here bitcoins are more economical in this case. Bitcoins do not charge any transfer fees and ten minutes is a much lesser time as compared to the 1 to 2 days that the banks take and a  similar thing applies to the credit card fees, the cryptocurrency can be more economical than credit card fees his is why banks, credit card companies and remittance companies have been against the cryptocurrency and are so even today because the cryptocurrency can become a rival to their business model.....

Negative Uses Of Cryptocurrency:

The reality is that cryptocurrency has some negative points as well that are mainly related with money laundering and security. In the dark web on the internet, the people had started accepting payment in bitcoins for buying weapons and drugs

It because very difficult for the law enforcement agencies to track transaction because they were outside the traditional financial system and issues related to hacking aldo surfaced. 

and another reason is that any one can come up with their own cryptocurrency. this is why, a lot of bogus and fraud companies took money from the public with a promise that once trading started in that particular currency, the value of their money would double/triple so they claimed that the money invested would double/triple.

Features:

There are many other cryptocurrency like bitcoin, which have a different price and different protocol, but some core principle stay the same in every crypto like the supply of the cryptocurrency is limited. Today's gold has some value because it is a rare metal and the supply of gold is limited in the world same as in each crypto the total supply in the protocol is predecided.

the second principle is the focus on privacy and crypto is decentralized. no institution decides the price of bitcoin in the market, it's price of a crypto completely depend on market forces.which is the interaction between demand and supply forces.....

THANK YOU...........