Understanding Bitcoin, Cryptocurrency and Blockchain.

Let us begin with understanding currency first.

In ancient times, thousands of years back, there was no currency (money like rupee or dollar, etc.) to trade or buy items that people wanted. At that time, the most common system of buy and sell was the barter system. People exchanged goods or services in exchange for goods or services. Suppose if I wanted rice and I had sugar in my house, I will find someone who will take my sugar and give me rice in exchange. This system of exchange of goods for some other goods is called the barter system. It was the standard mode of trade or buying or selling of items that people needed. But this was not very easy to practice. E.g., if you needed food immediately and you had some iron, you will have to find someone who will exchange food for iron. Sometimes it was difficult to find someone who would exchange your item for their items. The process was also very slow and even the quantity of exchange and the value of each item was not decided. E.g., how much sugar will be given in exchange for how much rice was not clear and it sometimes depended on the person who had most items and had a monopoly.

Gold was also used to exchange items in the same barter system. But it was very difficult to exchange gold for smaller items like rice etc. as gold was valuable. Also, gold was heavy to carry and needed to be cut into smaller bits to exchange for small items.

All these limitations of the barter system led to the introduction of currency where the king or government gave a piece of paper with its value mentioned or written on it and then those papers started to be used as a common mode of exchange for items and slowly this piece of paper became currency and replaced the barter system completely.

The currency was printed from the printing machine only by the governments and circulated in the market for people to use as a mode of buy, selling, and exchanging items. This is still the way of trade around the world and is likely to continue for decades to come. The good thing about this currency system was that it had very small currencies which could be used to buy small items and big currencies to buy big items. It was validated by the government and had the trust of the government which was a very important aspect, as in the barter system, the trust was missing and the regulation of quantity was also not present. The price depended on the monopoly of the person who owned most resources. If a man needed wheat for food and he had cotton, he would have to give a huge amount of cotton if the wheat owner demanded, if there were no other person who had wheat and was ready to exchange for cotton. But with currency, anyone could exchange items for currency, so the process became easier and more trustworthy. The bad aspect was that the control of currency was entire with the government!

Everything was going well until 2008 when the global financial crisis took place. You can read about the crisis on Wikipedia. The financial crisis made a lot of governments in the world take steps that they thought fit to fight the crisis. But not every step taken by the government was smart. For example, the Zimbabwe government decided to print a huge number of currency notes to fight the crisis. This resulted in a huge amount of notes being in circulation which resulted in a decrease in the value of the currency there. There was a time when a single loaf of bread in Zimbabwe was available for 550,000,000 Zimbabwe dollars. The government also decided to print currency notes worth trillions. At one point, a note of 100 trillion dollars was also available- printed by the government!

Even in India, the recent demonetization done by the government is a prime example of how governments control our own money and that they have absolute control and can take decisions that may or may not be in favor of us. The demonetization may be a good step or a bad step, the merits are not being discussed. The point is that the control of money lies entirely with governments.

This entire structure especially the control that governments enjoyed over money led a person named Satoshi Nakamoto to develop a system of global currency that he claim aimed to be completely out of government control, much more trustworthy than the government’s generated currency, and has global application. It was called BITCOIN and the technology that it ran upon was called Blockchain. Bitcoin was created in January 2009 by Satoshi and it is a type of ‘digital currency’. The technology on which bitcoin runs is called blockchain. Just like writing letters was replaced by email and SMS, similarly, bitcoin aims to replace currency notes. And just like email runs on the internet, bitcoin runs on blockchain.

Let us understand the difference between currency and bitcoin. The currency that we use can be given to someone either by hand-to-hand cash or online transfers like UPI or bank transfers. Hand-to-hand is not possible beyond a certain point. The other option is simply online bank transfers or UPI transfers like Paytm or Google pay. And when we do UPI or bank transfer, we do it through an intermediary called Bank. Without a bank, transferring money online is NOT possible. Now, banks are again under the control of governments and charge fees for transferring money to anyone. Satoshi wanted to remove the intermediary which would remove control of the government, so that our money is not under the control of the government, so that if there is a global recession, the government's steps may not lose our money or the government cannot lock up pour money. Also, to save the transfer fees, when we transfer money to anyone in the world online.

So, the differences:

1. Currency can be transferred via cash or online through banks. Bitcoin can be transferred online without banks directly from you to the person in his bitcoin account, not a bank account. His bitcoin account password will only be with him and nobody will have any access to it. The bitcoin account will exist on the internet and nobody can control it other than the person who has the password.
2. Online transaction fees are deducted from banks while bitcoin would cost very low fees.
3. Online transfer of currency to outside country requires further intermediary like western union money transfer charging big fees, while the transfer of bitcoin globally would charge very low fees.

Currency requires a government-backed intermediary to operate, while bitcoin does not require any government authorization or support. And this is the biggest factor behind the existence, development, and growth of cryptocurrency. A GLOBAL FINANCIAL SYSTEM FREE FROM THE CONTROL OF GOVERNMENT. Now let us understand what is Blockchain.

Blockchain is a technology on which cryptocurrencies operate. Bitcoin is a type of cryptocurrency. Simple. But is the technology of blockchain limited to cryptocurrency? It is like saying the Internet is the technology on which emails operate.

Just like the internet is much bigger than just a platform for emails, similarly, blockchain is much bigger than just a platform for cryptocurrency.

Let us understand how it works:

Suppose you want to save some data like your bank accounts details. So, you can write it on paper and keep it with you.

Suppose the data is big, so you can put it in an excel file or word file and save it in email or laptop.

Similarly, you can also save it in the blockchain. Blockchain is also a way to keep, save, transfer, and use data. And then that data can be used for various purposes.

Blockchain is made up of blocks. Each block has data. Each block is attached to the next block and this chain of connected blocks continues. What is special about blockchain is:

1. Each block is connected to the previous block through parts of data contained in the previous block. For example, Let us take 5 blocks. Each block has data about your bank accounts numbered 12345678, 56781234,98765432,54329898,43211357. These 5 are your bank account number that you want to save on blockchain. So,

In the first block, the bank account number 12345678 will be saved.

In the second block, the bank account number 56781234 will be saved along with the last digits of your previous bank account 5678 will be saved.

In the next block, the 3rd account number will be saved, along with some data from the 2nd block.

In the 4th block, the 4th account number will be saved along with some data from the 3rd block.

In the 5th block, the 5th account number will be saved along with some data from the 4th block.

So, if someone wants to change or tamper with your 3rd block details, they will not be able to tamper or change, as it will also have data of the 2nd block. So he will have to first change the data of the 2nd block, but the 2nd block will have the data of the 1st block. So, as all blocks will have data linked from previous blocks, it becomes almost impossible to change or tamper with the data saved in the blockchain.

Let us understand with one more example. Let details of a piece of land and the names of its owners be the data. So, the data is,

“Farm ABC is 5 acres in size and is owned by Amit. Then Amit sold to Rohan. Then Rohan added 2 acres to the land. Then he sold total of 7 acres to Kumar. Then Kumar sold 1 acre to Nitesh and kept 6 acres with him.”

Saving this data in 5 blocks of blockchain will be saved like this:

Block 1 has- Farm ABC is 5 acres in size and is owned by Amit.

Block 2 has- Farm ABC is 5 acres in size and is owned by Amit. Amit sold to Rohan.

Block 3 has- Amit sold to Rohan. Rohan added 2 acres to the land.

Block 4 has- Rohan added 2 acres to the land. Rohan sold a total of 7 acres to Kumar.

Block 5 has- Rohan sold a total of 7 acres to Kumar. Kumar sold 1 acre to Nitesh and kept 6 acres with him.

Block 6- Kumar sold 1 acre to Nitesh and kept 6 acres with him. Kumar sold 6 acres to Mohan.

Now, if anyone tries to change or alter or delete any information from this, then it will be clear that something from between has been changed or tampered with. Suppose someone wants to remove details of land selling done by Rohan. So, Rohan's details are in block 2, block 3, block 4 and block 5. So, someone who wants to remove Rohan’s details will have to remove all these blocks from between. Now, if these blocks are removed, we will see only data from block 1-

“Farm ABC is 5 acres in size and is owned by Amit.”

And block 6 directly-

“Kumar sold 1 acre to Nitesh and kept 6 acres with him. Kumar sold 6 acres to Mohan.”

 So, it is very clear that data in between has been tampered with as land is showing with Amit in block 1 and then directly, it is showing that Kumar sold the land. So, how Kumar got the land is missing. That will make it clear that something has been removed from between. If you were planning to buy this land, when you see this record, you will see data missing and you will understand that the data is tampered with.

This is a case in which something is removed or deleted or altered. Now, instead of deleting Rohan’s name blocks, what if someone just changes Rohan’s name to someone else?

This is not possible. The changing of data will not be possible until half of the computers of the world are hacked by the hacker who wants to change the data. Because blockchain data is distributed around the world on the entire internet and all the computers.

Similarly, medical records can be saved on the blockchain, voting records, municipal records, money, finance records, etc. all types of huge data can be saved safely and accessed properly on the blockchain.

Just like on the internet, a particular website can be hacked or changed, or deleted, but the entire internet cannot be hacked. Similarly, blockchain cannot be hacked. Just like you can access the internet from any computer in the world, similarly, blockchain data will be distributed on every computer in the world. To hack the blockchain means to hack the internet itself which will not be possible until all internet users agree to give access to their passwords to the hacker. Blockchain data is distributed across all computers using the internet of the world.

That does not mean the personal data of something will be visible to anyone. Blockchain is just like Microsoft excel in which you save data and only limited people have access to it. You can keep the data open to everyone also if you want.

Blockchain and cryptocurrency are very new topics and more research and development are still going on every day. It is not possible to give every detail about the technology and system in one single article but after reading this article, you must have understood the basics of these 2 concepts. If you read and research further, and watch Youtube videos on similar topics, you will get a better understanding.