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Why did bitcoin and other cryptocurrencies in blockchain emerged?

Photo by Dmitry Demidko on Unsplash

Why did bitcoin and other cryptocurrencies in blockchain emerged?

Shajith's photo
Shajith
·May 12, 2022·

6 min read

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Table of contents

  • Introduction
  • Physical cash
  • Digital money
  • Decentralization
  • Bitcoins and other cryptocurrencies
  • Conclusion

Introduction

First of all, let us start with how we have been using money. I will start from the time when cash has been standardized. Cash as in physical coins and notes is notably a great invention. We have used it to exchange cash in turn for goods. It is not the actual value of the cash we give but the value it possess. A 2000 Rupees note does not have a manufacturing value of 2000, but just it possess the value.

Physical cash

It posses the value of how it is perceived and it is agreed commonly upon everyone. A single dollar would be single dollar for everyone. We all agree that they have the same value.

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With the value we started buying things in exchange for the value. Now as you can see, physical cash have no record on them like who owns it now, who had it before, who is permitted to have and things like that.

It is also for a fact that, cash ownership can be transferred to someone else, asked or given without the interference of anybody else.

Cash in physical does not involve any third parties, no extra fees for transferring your money. Cash do not need you to self identify who you are. We can give it to anybody else, transfer ownership, give whenever we want, wherever we want and not depend on anything or anybody.

The only problem with physical cash is the distance. In case, if we are to give some amount of money to a person who is in the other side of the world, we have no choice other than travelling to them but use any services which will involve a third party.

Digital money

This is the reason digital money started emerging.

If you have a bank account or an e-wallet, in simple, you give them your money and they owe it to you. If you are using it in on a purchase, then the amount they owe you is subtracted with, what you purchased. If you are sending it someone, you are sending it to their accounts, where the money your bank owes you, gets subtracted and the money the receiver's bank owes him, is added.

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In short, you give your money to the bank, and they have a way of sending money with their fellow accounts which enables us to transfer our money to anybody else. But this involves validations from all sides. The sender must tell who he is, the receiver must prove who he is, the third party must ensure these both, should know whether the sender has that amount to send. This makes us totally dependent on a third party.

What is with third party getting involved?

It breaks anonymity, The third party will now know who is sending to whom and all other information related to that. They can use this information, sell our data and do much more. Also, we would be charged for their service as a commission.

Centralization

Involving them and depending on them makes it centralized. Centralization makes a single identity powerful. It is possible that there can happen a disaster which pulls down everything which is relying on it. If the centralized power is compromised, then everything as whole is compromised. The consequences are huge.

On a small scale, Imagine being on a shop purchasing something. You thought you could swipe your card or send money through card-less transaction online. The moment you are standing on the billing, your card got declined. The bank which you use is down, So the online transaction is down as well. You remember not withdrawing money recently and you know you don't have it in home as well. What would happen and what would you do?

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On a larger scale, Imagine everyone on the planet using the same bank, we all dump our money into it. We use it for all kinds of transactions. Over time, this becomes the way of using money, and you use it for every transaction. The bank would obviously charge you for using their service. Over time, the bank can increase their charges, limit you from transacting, check who is sending the money to whom, how much money is being transferred and many more things like this. Also, imagine if the bank is down, there will be chaos everywhere since we all relied upon the same bank and we can't do anything without that. Only people who had physical cash could buy things which would have many more complications surrounding it.

If the bank is completely gone all of a sudden, think about how the situation will be. There was an American series, which nearly revolved around a plot like this.

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The above mentioned are very few problems related to centralized systems, but there are way more different problems to talk about.

Decentralization

Decentralization solves this problem. There is no single power or authority in a decentralized network. Blockchain is a decentralized system. Everything is public and everything is recorded, nothing can be deleted and nothing can be altered. It is highly difficult to hack or alter data in it as there are different protocols for ensuring it's safety.

The system is distributed across different parts of the world. Everybody who uses blockchain has the same amount of power ( this applies to many blockchains ) and nobody can alter the record. A more detailed blog on the technical aspects of decentralization and blockchain will be posted very soon. As of now, you can trust that these records which are recorded makes it trustworthy and makes transactions anonymous and independent.

A bitcoin blockchain will have records starting from the day it is built to the the present day on any transaction taking place now. It is like a huge database with all the information but the database has replicas all over the world.

Bitcoins and other cryptocurrencies

Many cryptocurrencies have emerged from blockchain and each have their own set of rules. The focus is here on the addresses rather than the individual. For example, I will have an address and the person who is receiving will have an address, those are noted in the block and it is recorded on the blockchain. Only my address is visible rather than me as an individual.

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Also, there are no central authorities for limiting, restricting or monitoring. Since blockchain is decentralized many entities started creating different cryptocurrencies and each has their own set of ways and protocols. Bitcoin, Ethereum, etc are different cryptocurrencies in the blockchain.

Conclusion

In order to escape from a centralized power, to be anonymous , to value privacy with no extra parties or commissions involved and for many other reasons, Bitcoins and other Cryptocurrencies emerged. As of march we have around 18,465 Cryptocurrencies including the ones which are dead now.

These are my thoughts and understandings of blockchain and cryptocurrencies. I might be wrong or the blockchain protocol itself might get different over time. But this blog is focused on to give an idea and an introduction.

Your feedbacks and comments are most welcome.

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