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What is cryptocurrency? How is cryptocurrency regulated? Will it ever take the place of money?
Simply put, cryptocurrency is a currency system that uses blockchain technology. However, what we mean by currency here is that cryptocurrency is not such a currency. Any cryptocurrency is a ledger or ledger, where once a purchase is made, it cannot be changed. This is possible for blockchain technology (I will tell you how it happens later).
This is not a picture of Bitcoin, it is not possible to show Bitcoin in pictures.
The biggest discovery since the invention of the Internet is this blockchain and this technology will be used in everything in the next 10 years.
I would like to say at the outset that many people understand Bitcoin to mean cryptocurrency but Bitcoin is a lot like DARPA net where there was no audio or video support and this was the first internet. Bitcoin is a first generation cryptocurrency. It has some very basic features. The next generation of cryptocurrencies can use more modern features like smart contracts. This answer will be much bigger when it comes to smart contracts, so I didn't add it here.
To find out the answer to how cryptocurrencies are regulated, you need to know how they work.
I will tell you how Bitcoin works. Most cryptocurrencies work this way, so if you understand how Bitcoin works, you can understand the rest.
Although Bitcoin was the first cryptocurrency, its theory has been known to mathematicians since the 1990s. However, as a result of the 2008 financial crisis, Satoshi Nakamoto (a pseudonym, no one knows who or what he is) understands that the monetary system must survive at the hands of the government and powerful individuals or corporations. According to him, the division of religions and states in Europe led to the rise of the Renaissance, which led to unprecedented scientific, social and cultural progress, and the division of money and government would lead to unprecedented economic progress. Satoshi said that the government's control has created uncertainty in the market because the market mechanism cannot work properly here and as a result we see business cycle (boom, recession, depression, recovery). Some powerful individuals can exert their influence on the economy, colluding with the government which must be stopped. With this, Satoshi wanted to give up the banking system. According to him, the bank is a broker that only keeps our money safe and through it everything is bought and sold. Satoshi thought of a currency that was safe and could buy and sell things directly without the help of these middlemen. For this, on January 3, 2009, Satoshi started the Genesis block of Bitcoin.
So let's find out what Bitcoin is and how it works:
Suppose you and your three friends Ram, Rahim and Gurdeep go out together once a month. Someone pays your expenses and it is written in a book, at the end of the month. Bitcoin works a lot like this. But in reality there are some problems with this method.
1. How do you verify the transaction has really happened?
Suppose Ram gets 10 rupees from Rahim. The problem here is to verify that Ram really gets 10 rupees from Rahim and then to verify that Ram has paid this debt. This problem is solved by digital signature. Any transaction is authorized by this digital signature. This digital signature is a lot like the original signature, but it is almost impossible to duplicate this signature.
This is done by combining a public key and a private key to create a cryptographic hash function. From this the name of this currency became crypto currency. When you make a transaction, you give the public key to someone else and only you keep the private key. If someone gets your private key, he can take all your bitcoins.
What is this cryptographic hash function?
A hash function is a mathematical function so that you can input whatever you want, but this function will give the output of a certain number of characters. The funny thing is that this output is completely random and with the help of output you will not find the input. Bitcoin uses the SHA256 hash function.
Suppose you haveh Hello World, it will output to SHA256 a591a6d40bf420404a011733cfb7b190d62c65bf0bcda32b57b277d9ad9f146e
But if the input is Hello world then the output will be 64ec88ca00b268e5ba1a35678a1b5316d212f4f366b2477232534a8aeca37f3c
Just one character w to w the hash changed completely. But the lengths of the two hashes are equal.
The Bitcoin protocol creates a hash across your private key and your transaction and is called a digital signature. The Bitcoin protocol then drops this signature, your transaction and your public key into another verifying function whose output will not be true or false. If the output is true the Bitcoin protocol will approve your transaction or it will be rejected. Since your digital signature will not be visible to anyone outside, the Bitcoin network cannot be attacked using the Rainbow table. And if someone attacks Brute Force, he will have to get your signature out of the 2 ^ (256) combination, which can't be taken out even if all the computers in the world are running at once.
In short, no one can copy your digital signature without your private key.
2. If Rahim copies and pastes a transaction again and again, does he get more money from Ram?
The solution to this problem is very easy by adding a serial number before all transactions. If Rahim pastes one line over and over again, the serial numbers of all the lines will remain the same and the Bitcoin protocol will understand that the system is being fooled.
3. Or Rahim will not be able to demand more money but what if Ram refuses to pay?
This problem was solved at the beginning. If Ram does not have 10 rupees, he cannot ask Rahim to pay 10 rupees.
4. But this time the problem is if Ram continues to borrow after borrowing but does not repay later?
To solve this problem, the record of this account is considered to be money, which means it is Bitcoin. So you can make transactions using this record. So every day new blocks are added to it and this calculation is updated. So with the help of one bitcoin you can see when some transactions have taken place.
5. Then we are sure that no one will be able to make fake transactions in Bitcoin protocol. But what if someone tries to tamper with this accounting record?
It is almost impossible to manipulate Ledger because it is completely decentralized, meaning that no one has the laser in their hands, everyone has a copy of the laser. If there is a new transaction, the protocol broadcasts it to everyone and you will get it when you update the blockchain. So if someone has to manipulate, then everything has to be manipulated with a laser. Now the Bitcoin network is so big that it is quite difficult to do.
6 . But this time decentralization created a new problem. How do you know if a transaction is being broadcast?
This problem is called consensus problem and it is the biggest problem of any cryptocurrency decentralized.
The solution to this problem at the moment is Proof of Work (PoW), Proof of Stake or a combination of these two methods. This step of bitcoin transaction is done by miners. However, this mining is not something to be extracted from ordinary mines. This means doing a very long number.
In this PoW, miners run their computers and the Bitcoin protocol allows them to extract a hash with the last character.
Suppose the protocol tells minors to find a hash whose last character is 0101000. This time Minor Ra takes the previous ledger of Bitcoin, runs new transactions on it loudly and at any number at the end of it all in the SHA256 hash function. The miner who first finds a hash with 0101000 at the end will broadcast his hash to everyone and with that number he gets this hash from Jeter. The rest will look at it and if 50% of the computers on the network agree with it, it will be accepted as correct.
I have already said that input is not available from the hash function. So the minors have to check by dropping one number at a time. No one can manipulate it if they want to because the hash will change if they use the transaction as they wish. This is why PoW is so mature and almost impossible to manipulate.
This one is called a new transaction block. Since a new block is added to the old block in each transaction, it looks like a chain and is called a blockchain.
However, this method wastes a lot of electricity. The figure that finds the first hash will be accepted in vain. PoS has been introduced to solve this problem but it is not as mathematically as PoW. It has some drawbacks and mathematicians are working on it.
Since miners are working so hard to calculate, the Bitcoin protocol gives them some bitcoin. This is called mining reward for every successful mining. People used to do mining with the help of graphics cards. But now it is done with the help of Application-specific integrated circuit (ASIC) and it is done with the help of thousands of ASICs in huge mining farms.
A mining firm
7 . Now come to our last problem. The number of transactions that can be shown in one block is limited but there are thousands of transactions, so who will leave the car and add the transaction to the minor?
This problem has been solved with the help of mining fee. People pay a mining fee for every transaction. The higher the fee, the earlier the transaction will be accepted. Until a few days ago, this fee was very high, so the miners all increased the block length. As a result, more transactions can be taken in a block and the mining fee has been reduced a lot.
This means that the main issues of Bitcoin are
Ledger is the currency
Proof of Work
If you have noticed, you will realize that mining is creating new bitcoins every day. Much like printing new government money. So Satoshi has tied the total number of bitcoins to 2.1 crore and if some number of blocks are created, this mining reward is halved. According to mathematical formulas, this will allow you to mine forever, but the total number of bitcoins will not exceed 2.1 crore. But according to economic sources, this will increase the price of bitcoin day by day to encourage people to mine. For this reason, like Fiat currency, Bitcoin is not inflationary but deflationary. As a result, if you are a capitalist or an investor, you do not have to worry about it. This fear is not unfounded if you look at Venezuela, Zimbabwe or Argentina.
This is to say that no one can control most cryptocurrencies, not even their creators.
Now your last question is will cryptocurrency ever be able to replace fiat currency?
The answer is not straightforward. Satoshi made Bitcoin to be used as a currency but now it works like digital gold so no one would want to buy and sell with it because Bitcoin Pizza Day: Celebrating the $ 80 Million Pizza Order it could be.
This is why a number of stable coins have been made which do not fluctuate much. Libra which Facebook is making is an example of a stable coin. But the government will not give up control of the economy so easily. I personally am not in favor of having a completely laissez faire (economy is entirely in the hands of the market). Nevertheless, governments are releasing their cryptocurrencies, just as Venezuela's Petro and China have released their digital currency. India is also considering launching its own cryptocurrency. However, it remains to be seen whether these official cryptocurrencies can be called cryptocurrency at all.
What is the need for bitcoin or crypto currency?
As society and life move forward, so does the advancement of science, so does the advancement of economic instruments. There has been a lot of evolution in the thing called currency. From gold, silver or coinage it has turned into paper money. Advanced technology is being used to prevent counterfeiting. Then L credit card, debit card. With that, economic exchange became easier. These can be called 'digital currencies'. But cryptocurrency has brought the most unimaginable progress. Let's highlight some of its characters.
1. It has no government or institution. Huge populations around the world are circulating these currencies through a kind of secure network. No one is a policy maker, everyone is equal, just a node in the network. This coin will go from buyer to seller directly, without any intermediary, safely and surely. There is no central form of this monetary system, there has been complete decentralization. This is called a direct peer-to-peer network.
2. Bitcoin will allow anyone to buy anything from Ghana to China in an instant. No matter the bank, no matter the exchange rate. There is no middle ground, that is the design of this coin.
3. This currency can be quickly moved from one country to another. Bitcoin takes a maximum of 10 minutes. But some other cryptocurrencies may change hands in less time. However, in the current currency transfer system, it takes a few days to move from one country to another.
4. There is a nominal fee to send this coin from one person to another. It does not depend on the amount of money sent again. The same fee for sending one bitcoin and one lakh bitcoins. The current money transfer costs a lot of money.
5. Cryptocurrency transactions cannot be forged. Once transferred, it cannot be returned or changed in any way. In different countries of the world, it is being recorded on thousands of machines. This transaction is irreversible.
6. Cryptocurrencies have no inflation. The number of these coins is predetermined, so they can no longer be printed like money. Different countries are trying to increase their purchasing power in the international market by printing more of their currencies openly or secretly, resulting in a currency war. In cryptocurrency this is absolutely impossible. The maximum number of bitcoins is set at 2.1 crore.
Why is Bitcoin so valuable?
There are several reasons for the rise in the value of Bitcoin. These include:
1. It is thought that in the near future everyone around the world will use cryptocurrencies. To put it another way, if someone said 20 years ago that everyone around the world would use a cell phone, it might not seem very credible then. Many feel that this is exactly what is happening here.
2. The number of bitcoins is limited. So even if the price of a bitcoin is much higher, it is not surprising. Because, all the resources of the world have to be bought with that limited bitcoin, so the price of each one will be skyrocketing.
Is it possible to buy anything with bitcoin?
Many things can be bought with Bitcoin nowadays. For example, any product can be bought through Bitcoin from Overstock.com. Many more such businesses are now using Bitcoin as a currency. The idea is that just as credit cards are being used instead of money now, in the future money and credit cards will be replaced by bitcoin or some other symbolic currency.
Cryptocurrency is now like the 90's internet. I believe we can find a better economic system by this. But it will take some time.
No one can predict the future. Some of the famous economists think that in the future cryptocurrency will run the world, paper notes will not exist. Some economists have compared investing in Bitcoin to gambling because of the rise in cryptocurrency prices or the "random behavior" of falling prices. Whatever the theory may be, the graph of importance of blockchain and bitcoin in today's world is undoubtedly upward.
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