Cryptocurrency in the simplest way

During the course of history, money has been represented in various forms. Cryptocurrency is a virtual currency which is also the latest form of money in the 21st century. In this digital revolution, we live within a network of computers that are interconnected. This facility has let experts think of a digital currency system called cryptocurrency. 'Crypto' means secret. Cryptocurrency was launched for the first time in 2009 and the most popular name that we hear in this context is Bitcoin. Now there are many cryptocurrencies available in the market. Some of the famous cryptocurrencies are - Bitcoin, Dogecoin, Ethereum and Ripple. 

Cryptocurrency is not a physical product; you can't touch and feel it. This means you can't hold it on your hand like a coin. To maintain the value of a cryptocurrency, there is no central authority like the Reserve bank in case of India. Literally cryptocurrency transactions are distributed among a vast range of crypto users via the internet. This is the FOUNDATION of cryptocurrency - the concept of decentralization - that money won't be under the control of a single entity. 

Evolution of money 

Let's dive into the history of money! In ancient days there was a barter system. People exchanged goods for goods. Mainly rice and wheat were the medium of exchange for another necessary thing. There were a lot of anomalies in this system. Then people started to use valuable and everlasting metals like gold, silver etc. to buy things. But it was risky to carry them everywhere. Then the government gave the option to the people to deposit the gold in lieu of a receipt by dint of which people could do transactions. This was how paper money started and soon it took the shape of notes as we use today. Instead of goods, people started to trust on a promise from the government. You can see such a promise written on every note. The significance of the promise is that the bearer of the note will get the value wherever he or she takes and use it. 

Here a question often arises in the minds of many. If the note has a value then why not the government print some more notes and solve the problems of all the people ?

See, the amount of goods is fixed. Printing some more notes means more money will chase the same amount of goods. Suppose the government prints more money and now each family has Rs. 10000 to buy a smartphone. If everybody can buy it then to whom will the seller sell it? So, he will simply raise its price so that only one family can buy it. You need to understand that this is a supply-demand cycle. Printing more notes or money doesn't solve the purpose. 

A centralized banking system

With computers and the internet on the rise, the concept of e-money or digital money appeared. Keeping track of the digital money was a big challenge. This means if some money has entered your account, then somewhere the same amount of money must be deducted otherwise there will be chaos in the system. To tackle this challenge, a centralized banking system was developed. In India too, we have a centralized banking system. But there are still so many flaws in a centralized banking system. Here the banks invest your money somewhere else and if there is a loss then your money is at risk. Your money is under the control of some selected financial institutions and there is transparency. If money is ours, why is the control is with banks or other authorities?

What if everybody wants to withdraw the money from their bank accounts simultaneously for a day. Will the banks be able to give it? Do banks have that much money? No, this is not possible. But since withdrawal and deposit is a cyclic process, this problem doesn't arise. The bank shows you the number only in your account the existence of which they maintain by rotating various transactions. Money deposited by you is given to others in the form of loans or other facilities which means you don't have control over your money. 

So, what could be the solutions to such problems? - A Decentralized Currency System. This is the point where the concept of cryptocurrency dives in. A document about cryptocurrency was published for the first time in October 2008 by Satoshi Nakamoto. Till today the person is a mystery.  

BlockChain Technology

A  digital transaction is stored in a computer file called a ledger. Now, if it is stored only in a single computer then someone can alter it and do fraud. But what if the same ledger is stored in every computer. Will it be possible for someone to access all the computers and do the same fraud? The answer is 'No'. Cryptocurrency doesn't follow the traditional banking system. Transfer of a cryptocurrency keeps taking place from one virtual wallet to another.

Many computer savvies over the world are maintaining these public ledgers. Whenever there is a transaction, each and every computer will record it. So, whenever someone tries to alter the value, then there will be a mismatch and it will get detected immediately. The technology behind this is the 'BlockChain technology'. This is like a chain of blocks similar to a train. Each block represents a transaction that is linked to each other. All such transactions get completed within a few seconds and with accuracy. These block chains are not restricted to a single computer but they are available in a lot of computers. So, hackers can't hack such a system as it gets detected immediately. 

Miners

But to maintain such a huge number of transactions, a huge number of computers will be required. Actually this kind of maintenance is a system generated thing and the people who maintain such transactions are called miners who get their commission in the form of some cryptocurrencies. A third party will be required which means again a third party like a bank! To avoid this problem, the concept of bitcoin mining came. Here, anybody with the help of special computers and software can run algorithms and maintain the transaction process. So, there is no definite third party. The entire system is in the form of a distribution or blocks and so, a single entity or institute cannot have the control over it. 

Now, a question may arise that money under this system is transparent and anybody will know how much money the other possesses. But no! Here lies the reason why cryptocurrencies become so popular within a short span of time. The transaction is recorded in the form of some codes where nobody can guess the actual figure. 

One more question is that if miners continue to generate a cryptocurrency, say bitcoins then the same condition will arise as we have seen in the case of smartphones. To avoid the same, the number of a particular cryptocurrency has been given a limit. In the case of bitcoin, it has been fixed that no more than 21 millions of bitcoins will be generated. 

Bitcoin Crash

We often hear about bitcoin like share stocks that bitcoin crashes. The number of crypto currencies is fixed for a particular currency. When the demand increases, price increases. This means when more people start buying a particular currency then its demand increases else falls down or crashes. Bitcoin is a digital currency that has no physical existence. When you buy a bitcoin this means you're buying a specific bitcoin address through which you do transactions with other specific bitcoins. 

Status in India

In India, you can invest in cryptocurrencies but it is not yet approved as a regular currency. That means you cannot use it instead of cash. Towards the first half of 2018, RBI announced a ban on the sale or purchase of cryptocurrency for entities regulated by RBI. Thereafter cryptocurrency exchange challenged this issue in the Supreme Court of India and after a span of two years the case went in favor of cryptocurrency exchange and RBI had to remove the ban. The government is still working to frame an error free regulation board for cryptocurrency related investments. Recently Indian Government has proposed 30% tax on crypto like income. So, one thing is clear that Government is not going to ban crypto but new rules and regulations may come in future. 

Conclusion

We have seen that cryptocurrencies are private digital currencies. Currency should become decentralized. This means no government will be able to interfere over it. Whenever there is a salary increment for your father, the next day you'll get the news that the price of gas and electricity has increased. This is how people's money is trapped by various governments. So, a new and decentralized currency system is the need of the hour. However, there are some disadvantages in the case of cryptocurrency. In future the success of any cryptocurrency will depend upon its acceptance on various platforms.