Featured Image Credit : IBM
Part – 1
Hello, I hope you are doing great.
I am delighted to bring you my next blog series. When I started I didn’t know that this will turn out to be a long blog, which I have to release like a series. But, at the same time, it was important to highlight all the important aspects of this new and buzzing technology.
I will release the next blogs of the series everyday. So, get ready, here we begin. 🙂
Today, we will talk about a fascinating thing, the Crypto world. There are really awesome things going around us, people are creating, never-before-imagined ways to do business, and that too in more secure, democratic, and transparent ways. I want to use this opportunity, to talk about the Crypto universe, from my perspective. I will do it through simple English of course, that you & I, can understand, imagine, and cherish.
What is Currency?
Long back in our Sapien history, we can see that individually we don’t have enough of everything to live or thrive, and hence it was imperative to take help or things from people around. But, why would anyone help us, other than those who love us? Of course, if they get something in return.
In life, it seldom happens, that the other person actually needs what we are offering, such arrangements are hard to find, and if we take a break from materialistic needs, such people could be our soulmates. 🙂 But going back in time, it must have been a ruckus to bring two people to a consensus, to exchange one good for another. Some had apples, some had oranges, and some had wood.
This gave rise to the need for a third party to introduce an imaginary and mutually agreed object that can be traded or exchanged in return for anything. The third-party ensures that the imaginary object has a certain value. This imaginary object is Currency. Without you and me agreeing to it, it’s nothing, with our consent, it is everything.
Now, this third party is taking this guarantee, that this piece of paper will hold a certain value. This middleman is very essential and hence could be a source of so many failures, bottlenecks, and limitations.
We have come so far, we have evolved tremendously, and we are so vibrant, breaking old norms, and creating a new world, but in this simple three-party barter system, we were still too backward. Surely it was a time of a new financial system. More efficient, secure, and effective.
Hence, here comes decentralised finance. Now, we don’t have to trust a single third party, rather there are multiple validators, that store the complete ledger at their end.
Hence, no one entity holds all the data and power, it is distributed across the network. Coming out as one of the use cases of blockchain, which has the power to streamline so many processes around us, cryptocurrencies have come too far in knitting the whole world into one financial system. A more transparent, secure, and robust one. And, yes don’t forget the frequent roller coaster rides. 🙂
Probably one of the most heard-about cryptocurrencies, that brought into existence in 2008 by Satoshi Nakamoto. The true identity of Satoshi Nakamoto is still unknown, it could be a person or a group. The bitcoin white paper proposed a simple use case of a peer-to-peer electronic cash system.
Bitcoin acted as the first and most successful use case of blockchain and gave birth to the new era of decentralised finance. Today, the crypto world is full of new projects and ideas, that are being implemented around blockchain technology.
Banks and other financial institutions are incubating decentralised projects on blockchain, as their own way to get ready for what’s coming, in the future.
1. It’s secure
Since there is no centrally trusted party involved, the system works on a distributed network of peers, who maintain the most recent copy of the ledger at their end. Whenever a transaction is broadcasted, they validate it, and once all or at least 51% of the peers approve the transaction, then only it is included in the next block of the chain.
There are majorly two ways popular to reach consensus in the network. Proof of Work and Proof of Stake. Without getting into the details, which you can get into, by clicking the above links. In Proof of work, participants have to solve a mathematical problem, that requires a certain amount of computational power, the participant who solves it at the earliest, creates the new block on the chain and earns a reward.
In Proof of stake, participants have to stake a certain amount of funds, to become a validator in the system. The system chooses either of them, based on a just criterion, and as a validator, they earn a reward. Bitcoin works on Proof of work and it aspires to shift to Proof of Stake like Ethereum. We will discuss this further subsequently.
Cryptography
Cryptography is not a new thing in the world of technology or even for humans. The technique has been extensively used, in which a plain text message is converted into an unreadable string or number, and the only person with the key to decrypt, can see the original message.
For blockchain, cryptography is at its core. Those who are from a technology background would be aware of the term Hashing. For those who are not, it is a simple task of converting a dynamic input into an output of a predetermined length. I am using an example from the Binance Academy, which host exceptional learning content for Crypto enthusiasts.
Below you can see, that even when a single input is changed, the output changes completely. Hence, it is not possible to understand the output, even if it is generated from almost similar inputs.
Hashing Type: Secure Hashing Algorithm – 256 (SHA-256)
Input | Output (256 bits)
Binance | f1624fcc63b615ac0e95daf9ab78434ec2e8ffe402144dc631b055f711225191
binance | 59bba357145ca539dcd1ac957abc1ec5833319ddcae7f5e8b5da0c36624784b2
The details of the transactions and the details of the next and the previous block are saved cryptographically through hashing. The same technique is used across Database management, where system security is enhanced by saving the hash value of customer data, rather than saving it in the plain format. Since, it takes a lot of computational power to break the hash, and get the information, it makes it very hard for hackers to get in.
Thank you for your reading, since the subject is a bit technical, I don’t want to stimulate your imagination buds a lot. Do come back tomorrow to read the Part -2, which I will release at the same time. There are lot of interesting conversation coming. Stay Tuned. 🙂
~R
Part-2 is out, hurry, have a look.
An Observer 
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