Bitcoin has intrigued the minds of people all over the world in the last 2 years, as this cryptocurrency went up 20 times in just 2017 to ~$ 20,000 and then dropped all the way to ~$6,000 in the past 4 months. Mind you bitcoin price is still up 6000 times since its invention in January 2009.The bulls are shouting out this as an opportunity to ‘hodl’ (a twist created by bitcoin maximalists) while the bears are seeing this as ‘a start of the end’ of bitcoin. Who will be proven right? Only time will tell!
In this series of articles, we will discuss genesis, journey, and future of Bitcoin and the whole token economy. Bitcoin’s genesis was in the middle of the 2008 banking crisis and has been considered as a revolt by common people against the traditional banking system which failed miserably in this crisis. In August 2008, a white paper was written by an anonymous person/s ‘Satoshi Nakomoto’ with a headline ‘Bitcoin – A peer – to – peer electronic cash system’. Bitcoin entailed to achieve instantaneous transfer of money across the world without any intermediaries. Before bitcoin, there have been multiple attempts to achieve the same feat through variety of digital currencies by the community of computer scientists calling themselves ‘Cypherpunk’. But all of them failed in variety of ways; starting from requirement of central authority to handle transactions to most prevalent double spending problem of digital currency. Bitcoin addressed all these obstacles with various innovations in the field of computer science and its branch ‘Cryptography’.
Bitcoin solved the most common problem occurred in cryptography called ‘byzantine general’s problem’ where it was difficult to build consensus amongst disparate computer nodes based throughout the world. Bitcoin network solved this problem by establishing a ‘proof of work’ system which is approved by the decentralised nodes in the P2P network.
Underlying technology in Bitcoin is called ‘Blockchain’ which involves various individuals/entities carrying out different functions based on usage and incentives incorporated in the blockchain. Bitcoins, like gold are required to be mined, not physically but electronically by solving a difficult maths puzzle. Thus, the miners, use their computing power to solve this puzzle and are rewarded with few bitcoins every time they mine a block, quantity and timelines being pre-decided in the system. Individuals can buy or sell bitcoins through various bitcoin exchanges throughout the world and store them in the bitcoin wallets (similar to paytm wallet). Similarly, individuals and businesses can accept bitcoins as a payment by setting up bitcoin accepting wallet. That’s it! Individuals and businesses can start transactions immediately without any approvals.
Progress and acceptance of this cyrptocurrency hasn’t been easy as it sounds. There have been multiple issues starting from government regulations to software scaling issues that have impacted the value of bitcoin. We will examine why governments are cracking down on bitcoin and other cryptocurrencies. But before that, we will discuss whether bitcoin meets the criteria required to be called a currency which can be used for regular transactions or it’s just an electronic gold equivalent having universal acceptance. Or is it just some fad which will taper away in few years.
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