We live in interesting times. It’s the age of electric vehicles and fidget spinners. When a new thing shows up in the Internet age, it takes a while for everyone to determine what it is, let alone what it can become. As for bitcoin, it’s been 8 years since it came out but most of us are still unsure about what it is. Is it a bird? Is it a plane? Is it a decentralised consensus network that enables a cryptocurrency? Woah, lucky guess!
What Is It?
It’s hard to understand the jargon when you don’t understand the problem that it’s trying to solve. Let’s imagine a completely hypothetical scenario where you had a 1000 rupee note but you gave that note to the government because suddenly, that’s the law. After that physical transaction, you are left with nothing whereas the government has your 1000 rupee note. Now imagine if you had a digital 1000 rupee note, things are not so simple anymore. You could simply copy-paste and email the note to the government while simultaneously emailing it to the terrorist outfit of your choice. These are not my words; it’s the government that assumes you’re funding terrorists with that money – feel free to take this issue with them. Regardless, this is called the double spending problem and it baffled computer scientists for a long time until Bitcoin offered a solution in 2009.
How Does Bitcoin Solve The Problem Of Double Spending?
Bitcoin consists of a network of peers. Each one has a unique ID (or digital signature) and a copy of the “blockchain”, that is, a public ledger that contains entries of all bitcoin transactions ever performed. When someone makes a bitcoin transaction, it gets processed by “miners” on the network. Miners have dedicated hardware that implements time-consuming crypto algorithms to ensure the validity of the transaction so that it can be added to the blockchain. This is the reason bitcoin transactions take very long. Once added, it is highly improbable that the transaction will be reversed. The miners get rewarded with bitcoins for their service to the network and that is the only way to generate new bitcoins.
So, if you had five bitcoins and you gave one to the government, then the ledger records that transaction. Now, you can’t pay five bitcoins to someone else because everyone has a copy of the ledger and it says that you have only four bitcoins, thus solving the double spending problem. Everything is so much simpler in retrospect!
Why Is It In The News?
Bitcoin is in the news because recently, its price soared past $15,000 and it made a debut on a major US futures exchange. It’s as if a “Stay at home and get rich!” advertisement has gone viral. Some people are regretting not investing in them. Others are calling it a bubble similar to the dot-com boom in the late 90s that even 90s kids will not remember because they were too busy watching movies like ‘International Khiladi’ and ‘Hero No. 1’. The speculative bubble is also being likened to the Tulip mania in 1636 when the bulb of the tulip flower was being sold for more than 10 times the annual income of a skilled craft worker. 1636 was probably the only year when a burly man wearing a cowboy hat, got down from his horse to enter a bar, got completely drunk and then threw a tulip on the counter as payment.
“Criminals Love It!” Is A Bad Sales Pitch
Bitcoin is popular albeit infamous because it is anonymous (well, it’s only a matter of time until they make us connect even this to our Aadhar Card!) and everything happens online, making it a perfect mode of payment for criminals and users of websites like Silk Road (think Flipkart but for narcotics). Even Bitcoin’s birth is shrouded in controversy and anonymity. It was created by a person or a group of people called Satoshi Nakamoto. He posted the Bitcoin code on the Internet as open source and was active in the development process up until 2010. He was the first miner and based on the block-chain, he has roughly one million bitcoin but his software works as designed – no one knows who or where he is.