What is BITCOINS, Cryptocurrency, and Blockchain Technology ??? In Simple words.
Before I talk about Bitcoin, let me warn you of something very important. If you are thinking about buying coins other than Bitcoin, please do more study in this field. Almost all of them are scams. The rest is not proven to be of any substantial use.
So What is Bitcoin???.
Bitcoin is money. Some monies are good while some are bad money. I argue that Bitcoin is the best form of money we ever had, even better than gold.
Anything which is money needs one very crucial property. It must be difficult to create more of it. Fiat money like Indian Rupee, Dollar can be created from thin air by governments and they lose their value over time as governments print more money. For gold, it costs money to mine it. Less than 2% of the total gold is mined every year. The total supply of Bitcoin is fixed. 85% of it is already mined. Within two months, Bitcoin will be more scarce than Gold as 3rd halving event happens in May-2020.
Who decides what will be the supply of Bitcoin? Who stops me from creating new Bitcoin out of thin air? To answer all these questions, let us understand how Bitcoin works.
Consider a group of people on an island. They want to do business but don’t have a currency to exchange goods and services. One solution is to decide a leader of this community and give him the power to create a currency. Thus the leader can create currency. Then he can distribute and can regulate it. But in the future, they may lose trust in him or they just don’t want to give so much power to some leader.
Now they came up with an innovative solution that does not require any central authority. Initially, they decided that each of them has 100Rs. So each of them wrote 100Rs against their name on a piece of paper. Something like this:
- Sachin: 100Rs
- Dhoni: 100Rs
- Virat: 100Rs
And so on…
Now if Sachin wants to send 20Rs to Dhoni, he has to write that transaction on this list. Something like this:
Sachin to Dhoni: 20Rs, Current Balance: 80Rs
Dhoni: 120Rs
This way, now onward, if anyone makes a transaction then he has to put that transaction on that list. Thus, in the future, Sachin can’t do a transaction of more than 80Rs and Dhoni can’t spend more than 120Rs until he does not receive extra money in future transactions from someone else.
If there is just one copy of this list then it is problematic. It may get damaged or lost. So think about identical copies of the list for each person on that island. And think of magic pens such that if you write a transaction on your list with this pen, it appears on each and every other list. And also if someone new person comes on that island and wants to take part in transactions, then he also gets a copy of this list and that magic pen.:) In other words, everyone should be allowed to take part in this system. This idea seems good. No central authority and everyone can take part. But there don’t exist magic pens and papers in the real world. So How to maintain these lists? How to make sure that all the lists are identical ??? People could be dishonest. They may not trust each other. Who stops them from putting wrong transactions on that list?
In 2008, an unknown person Satoshi Nakamoto came up with an innovative solution to this problem — the problem of maintaining this long, forever growing list of transactions. In the age of fast computers, fast Internet and highly secure cryptography, we don’t need a magic paper and magic pen also. Satoshi Nakamoto published a paper named Bitcoin: A Peer-to-Peer Electronic Cash System in which he (or she or they — Satoshi Nakamoto is anonymous as of today) solved a problem in computer science which is how to establish trust in the decentralized trustless network. He put together some existing technologies like cryptography and other few and a miracle happened. We got a fully decentralized currency, know as BITCOIN.
I would strongly suggest this video which explains beautifully the fundamentals of cryptocurrency in less than 30 minutes. To read further you need to watch the above video.
So what does it mean “You have 1 BITCOIN”. It means that in that list — or chain of blocks or ledger — there is your name address (a public key) with 1 BITCOIN written against you and you have the private key which only you know :). Here name address is not your actual name but it is something like this 1LU22GzF9r6JCV5bNAUypGdvpifqHqzpmH.
A website if you want to learn more: bitcoin-only.com
Follow the people who have a batter understanding of BITCOIN and learn from them. Twitter is the best medium for it.
If possible, read these books:
The BITCOIN standard by Saifedean
Little Bitcoin book by Jimmy song and others
List of best resources to learn about BITCOIN:
https://nakamotoinstitute.org/literature/
https://medium.com/@pierre_rochard/understanding-the-technical-side-of-bitcoin-2c212dd65c09
Recommended Wallets
Don’t keep your BITCOIN in exchange. As soon as you buy your BITCOIN from the exchange, transfer your BITCOIN to your own wallet. If you have a large amount, store in a hardware wallet.
- Hardware wallet: TREZOR (don’t buy it from amazon. Buy from official website)
- For android: Samourai, Electrum
- For PC: Wasabi, Electrum
You must keep your private keys safe.
Feel free to ask in the comment section.
And lastly have a look at the price of bitcoin over the last 10 years. If you want to understand why bitcoin price keeps going up on longer intervals, give it a read to this amazing article by Vijay Boyapati: The Bullish Case for Bitcoin.
