What is Cryptocurrency?
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses the Blockchain technology to secure financial transactions and verify the transfer of assets among the individuals. When we buy something, the payment usually goes through the bank or credit card company. So, here comes the problems are-
- The companies often take a cut of the transaction
- We have to trust these companies to protect our sensitive data from hackers
There most international payment takes a long time and is expensive. To solve these problems, we could use a special currency that is secure and based on the science of cryptography which is a way of protecting information using mathematics. This special type of currency is called Cryptocurrency, which only exists in computer networks. When you send some this special currency, the money goes directly to them cutting off the middleman. The decentralized control of each cryptocurrency works through distributed ledger technology, that serves as a public financial transaction database. And at the same time, the transaction is broadcast to the entire network and recorded in a permanent way, which means its almost impossible to fool the system.
The cost of making the payment is lower, the transaction is faster, especially across the national border.
And even those people around the globe who don’t have bank accounts can even sell and purchase the goods and participate in the global economy. However, there are some risks. The transaction in most cryptocurrencies is anonymous. This could make it easier for the bad guys to make payments without being noticed. If you lose your password you could lose all the money that you have. At the moment cryptocurrencies are highly volatile, so investment in such an entity can be a bit risky.
Bitcoin was the first cryptocurrency to be coined in the market in the year of 2009 and it is probably the first crypto and since then till date over 4000 Altcoins have been created over the decentralized network all working on the different concept.
There is much exchange that offers you the way to purchase sell using your bank account, debit card, and credit card and also allows you to make the trade of altcoins anytime across the globe. Few of them are named as-
- Blockchain, etc…
How does Cryptocurrency work?
When you wanna buy something normally using your normal bank card, this is what happens: I give my card details to the shop, the shop asks the bank if I’m good for the money. The bank checks its records to see if I’ve got enough in my account. If I do, it lets the shop know, it updates its records to show the movement of money from my account to the shop’s, and it takes a little cut for its trouble. Now if you wanted to remove the bank from the system, who else would you trust to keep those records and not alter them or cheat in any way. Well, you wouldn’t trust me, and neither would I. In fact, I wouldn’t trust any single person. But I might trust everyone. The idea is you don’t have central records of the transaction, instead. You distributed many many copies of this ledger around the world. Each owner of each copy records every transaction.
So to buy something using cryptocurrency I give the shop my details, the shop asks all the bookkeepers if I’m good for the money, the bookkeepers all check their records to see if I have enough, if I do, they tell the shop, and they all update their records to show the movement of the money. So there’s no way a forged transaction can make it in – If I try to alter the ledger, it won’t match all of the other copies, and it gets rejected. Oh, and one of them at random will be given a reward of some newly created cryptocurrency(through Mining). This is how cryptocurrencies work and remember all of these bookkeepers, all of these ledgers, they are not actually people they are all computers. Lots of computers.
What Is Blockchain?
Many people think of Blockchain as the technology that powers Bitcoin, well this was its original purpose but Blockchain is capable of so much more. Despite the sound of the word, there’s not just one blockchain. Blockchain is short-handed for a whole suite of distributed ledger technologies that can be programmed to record and track anything of value from financial transactions to medical records or even land tiles. You might be thinking that we already have processes in place to track data. What’s so special about blockchain?
Lets breakdown the reasons step by step why blockchain technology stands the way to revolutionize the way we interact with each other.
1. The Way It Tracks & Stores The Data
Blockchain stores information in batches called blocks that are linked together in a chronological fashion to form a continuous line: metaphorically, a chain of blocks. If you make a change to the information recorded in a particular block, you don’t rewrite the block, instead, the change is stored in the new block showing that X change to Y at a particular time and date, sounds familiar…!!! That’s because blockchain is based on the centuries-old method of the general financial ledger. It’s a non-destructive way to track data changes over time. Here’s one example. Let’s say, there was a dispute between “A” and “B” over who owns the piece of land that’s been in the family for years. Because blockchain technology uses the ledger method, there is an entry in the ledger showing that Adam first owned the property in 1900.
When Adam sold the property to Dave in 1930 a new entry was made in the ledger, and so on. Every change of ownership of this property is represented by a new entry in the ledger right up until A bought it from their father in 2007. A is the current owner and we can see that history in the ledger. Now, here’s where things get really interesting. Unlike the age-old ledger method originally a book that a database file stored on a single system, blockchain was designed to be decentralized and distributed across the large network of computers. This decentralizing of information reduces the ability for data tampering and brings us to the second factor that makes blockchain unique:
2. It Creates Trust in a Data
Before the blocks could be added to the chain a few things have to happen, First, a cryptographic puzzle must be solved, thus creating the block. The computer that solves the puzzle shares the solution to all the other computers on the network, this is called the PROOF OF WORK. The network verifies the proof-of-work if correct, the block will be added to the chain. The combination of these complex mathematical puzzles and verification by many computers ensures that we can trust each and every block on the chain. Because of the network does the trust-building for us, we now have the opportunity to interact directly with our data in real-time. And that brings us to the third reason blockchain technology is such a game-changer:
3. No More Intermediaries
Currently, when doing business with one another, we don’t show the other person our financial or business records instead we rely on trusted intermediaries; Bank, to view our records and keep that information confidential.these intermediaries build trust between the parties and are able to verify.
For example, that yes “A” is the rightful owner of this land. This approach limits exposure and risk, but also adds another step to the exchange which means more time and money spent. If A’s land tile information was stored in a blockchain, she could cut off the middle man, her lawyer, who would ordinarily confirm her information with B. As we now know, all blocks added to the chain have been verified to be true and can’t be tampered with, so A can simply show B her land tile information secured on the blockchain. A would save considerable time and money by cutting off the middleman.
This type of trusted peer-to-peer interaction with our data can revolutionize the way we access, verify, and transact with one another. And because Blockchain is a type of technology and not a simple network it can be implemented in many different ways. Some blockchain can be completely public and open to everyone to view and access. Others can be closed to a select group of authorized users-such as your company, a group of banks, or government agencies. And there are hybrid public-private blockchains too. In some, those with private access can see all the data, while the public can see only the selections. In others, everyone can see all the data but only some people have access to add new data.
for example, could use the hybrid system to record the boundaries of A’s property and the fact that she owns it while keeping her personal information private. Or it could allow everyone to view property records but reserve to itself the exclusive right to update them. It is a combination of all these factors-Decentralizing of the data, Building trust in the data, and allowing us to interact directly with one another and the data- that gives blockchain technology the potential to underpin many of the ways we interact with one another.
But, much like the rise in the internet, this technology will bring with it all kinds of complex policy questions around governance, international law, security, and economics. Here at the center for International Governance Innovation, we seek to bring trusted research that will equip policymakers with the information they need to advance blockchain innovations, enabling economies to flourish in this new digital economy.