Cryptocurrency explained… kind of!

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Photo Credit: Bitcoin News

Crypto who? Cryptocurrency is virtual or digital  money that has secret codes embedded in it, to make it safe and secure, and in some cases, gives the owners an alias, so that their true identity is kept secret.

Why do we need this? 2008 was a time of great unrest in the world, as there was a big financial crisis. The biggest banks in the world went bankrupt and lost a lot of the money that various people were saving there. Many innocent people lost their money, jobs and homes. These people lost faith in the banks and governments that let them down.

Enter Satoshi Nakamoto!

Who is that? Satoshi Nakamoto is a person or group of people whose identity (ies) are secret! Satoshi Nakamoto launched their own secure and encrypted money called bitcoin, to create a fair system that gives everyone control of their own money, shares and other belongings, without the need to completely depend on banks that failed them. Power to the people! 

How does bitcoin help? So Satoshi Nakamoto were so unhappy with the big banks, that they decided to make a world where people can buy and sell with a digital encrypted currency called bitcoin. There are many other digital currencies that have launched since then. Some of the better known ones are Ethereum, Litecoin, Zcash and Dash. These are not particular to a country or area, but can be used to buy things anywhere in the world. 

Can we see these coins? They are stored online in a digital wallet, and can be used to buy things in the real world or online. For example, many restaurants and stores now accept payment in bitcoins.

OK, I get it. But who keeps track of all the exchanging of all this money in different forms? In the real world – If Alice wants to sell something to Bob – Alice will want to make sure that Bob keeps his promise to pay her for the goods she sends him; like-wise Bob will want to ensure that Alice keeps her promise to deliver goods to him if he pays her. Banks do not ensure that Alice and Bob are protected if one fails to keep his or her promise. They offer a service to protect them, but this costs a lot of money.

Enter blockchain! 

What is blockchain? Bitcoin is based on a technology called blockchain. Blockchain is a global public internet service that records everyone’s promises to each other and ensures that everyone keeps their promises to each other. The promises can be ownership of goods or money. Exact copies of records of ownership of money or goods are kept on millions of computers on the internet – these records are collectively called the blockchain. Each time money or a good moves from one person to another, these records are updated on all the computers – ensuring that everyone knows who owns what so that no one can be cheated. Because the records are kept in so many different locations, they are secure. Yay! 

The Blockchain is called the Trust Machine, because it records these promises and ensures that everyone is keeps them.

Hmm… a lot to think about. More on bitcoin and its soaring value next week!

Contributed by Simran Mulchandani, Director, Lykke Asia

 

 

 

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