The universal currency? — Bitcoin
1 Bitcoin = 2188.4 US Dollars !!!
“I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world.” — Peter Thiel, Co-Founder of Paypal
And I don’t think you need an explanation for what Peter Thiel said. Currency conversion rate is more than enough for that.
What are these bitcoins, where are they stored? Can we get some? Let’s find answers.
Bitcoins are considered as the first decentralized digital currency. Simply there is no centralized authority that issues bitcoins. For all most of all the other currencies,they have a central bank or a central control.Bitcoins are the remarkable innovation, that turned world finance upside down with a currency without a central control. And it is worth mentioning here, the underlying architecture of bitcoin guarantees that no one will ever be able to control this digital currency. Who created bitcoin and how does it work?
Not all great events have great beginnings. Bitcoin is one of them. Beginning of bitcoin is a not something that is crystal clear. Credit of designing bitcoin goes to “Satoshi Nakamoto”. Most technologists believe that Satoshi Nakamoto is a covered name which is used by a group of unknown experts in cryptography and computer science. Some are argued that Satoshi is actually a Japanese guy!
The most important fact is, the entire power of bitcoin lies in the basic principle that governs this currency. And that is the ultimate reason behind the unbelievable popularity of bitcoin in the binary world regardless of its origin. The powerful concept behind bitcoin lies as you don’t need banks and you can be your own bank. You’re the true owner of your money. There is no single person in this world who can stop a transaction you make. No one can freeze it, no one can seize it. That’s the underlying story that Satoshi Nakamoto shouted out loud. Sending a worldwide email under his name, he invited techies all over the world to join this world of true ownership. Though the idea first sounded crazy, later world realized that this is absolutely stunning.
How does this entire system work? Even though it is hard to believe for the first time, bitcoins are automatically created by a computer algorithm governed by mathematics. Well the word “creates” is not the most suitable word for the explanation. But for the moment that’s fine. Bitcoin with uppercase “B” is the shared code that creates the global network using any terminal that is connected to the internet, and the place where digital currency bitcoin (with lower case “b”) is created ,shared and stored. It doesn’t matter what the actual terminal is , it can be either your laptop, smartphone or even your smart TV!. This shared code designed by Satoshi is available in open source. Anyone can look into that and get a complete understanding on how mathematics has painted this entire picture. The code was first designed by Satoshi himself. But now with the collaboration of thousands of programmers who believe this revolutionary currency, bitcoin has become much more stabilized and secured than it was.
Let’s dig deep how this amazing idea came to an reality. In a bitcoin system there are only few basic operations. Those operations involve some beautiful principles in mathematics and cryptography. Let’s reveal them one by one.
Bitcoin system is nothing but a ledger. It looks very similar to usual ledgers used in a bank. Difference is that, this ledger is global. It is ‘The Ledger” in bitcoins. It contains all the transactions occurred so-far since the bitcoin was born.It is written in a manner that nobody can alter past records. Basically it is nothing but just a document with numerical value and the owner attached together. But remember due to this ledger and since it contains all the transactions from very first one. The exact total amount of bitcoins in the world is visible to anyone in the world. Actually this single point is considered as one of the key influences that leads the world towards this cryptic-currency. With a centralized currency, a task like calculating the net value of all money is something far beyond reality .
Let’s assume Alice wants to send 2 bitcoins to Bob. What Alice does is send a global message saying that she transfers 2 bitcoins to bob. Via the “Bitcoin” network that message will be broadcasted all over the globe and every copy of the ledger will be updated according to that.
Here comes next two big problems. First one is, since everybody knows that, this transaction happens, how Alice make sure the money will be transferred to Bob without the vulnerability of getting stolen. Second one, how Bob knows that these two bitcoins are transferred from Alice and no one else. Solution lies in an extraordinary mathematical concept.
Private and Public key encryption. — This encryption can be considered as one of the wonders in number theory. (An advance part in mathematics.) Even though it was designed using advanced mathematics (Based on RSA algorithm designed at MIT) it can be simply explained like this. There are always a key pair. Let’s call them “A” and “B”. A message which is encrypted using key “A” can only be decrypted by key “B”. Rest is simple logic.
1.1 Scenario 1 — What a person does is he shares his key “A” is publicly. So it becomes the public key. And keeps key “B” only with himself. If any other person in the world need to send a message to this person,he or she has to encrypt the message using key “A” and send it. Since key “B” is a secret, only the person with the private key can decrypt it.
1.2 Scenario 2 — Person can share key “B” publicly and keep key “A” only to himself. So what he can do is he can encrypt anything that he wants to send using key “A”. Since key “B” is shared publicly anybody can decrypt and read it. The point is since key “A” is only kept with a the relevant person only the that person can send message which can be decrypted using “B”. It verifies the sender’s identity. (This is the basic concept behind the digital signature as well.)
Now comes the easy part. What Alice does is, she gets Bob’s public key and encrypt the message and then again encrypts the whole thing with her private key. Then she sends the message globally. Everybody can decrypt it using Alice’s public key and they will see a message encrypted in Bob’s public key. From 1.2 Scenario Bob can verify the identity of Alice and since the message is also encrypted in his public key only Bob can claim for the bitcoins and no one else. The whole world knows those bitcoins are transferred. But thanks to the wonderfulness of pure mathematics, nobody can steal it.
That’s how the basic functionality of currency — “The Exchange” , is designed in cryptic- currency. And remember that’s just one interesting concept in bitcoin world. There are more to come. Exchange is only the beginning. Let’s keep this discussion continued , the wonders in bitcoins are yet to be revealed.