What is Cryptocurrency and Why we need them ?
The reason we are all here is that the current financial system is outdated.
– Charlie Shrem — founder & CEO Bitinstant
1. THE KARDASHEV SCALE
In 1964 a Russian physicist by the name Nikolai Kardashev came up with the idea to find out the intelligent living beings outside the solar system by calculating their energy consumption called KARDASHEV SCALE. If you are wondering what Astrophysics have to do with Crypto currency, bear with me to get a big picture. The Kardashev scale comprises of 3 Type Civilization:
Type 1: Interplanetary Civilization, a civilization which can harness all of the planet’s energy.
Type 2: Immortal Civilization, a civilization that can harness all the energy of its parent star by building Dyson sphere and become exempt from extinction.
Type 3: Intergalactic Civilization: Control over the galaxy and can travel intergalactic like The Empire from Star Wars.
We are the intelligent species of all known in the universe and still we are not the Type 1 civilization. We have Type 1 language- English; Type 1 communication-the Internet; Type 1 currency — ?. Since the Dollar, Rupees, Euro have different values so we don’t have a universal currency and we cannot become a Type 1 civilization. Though crypto currency wasn’t invented for us to become Type 1 civilization but now it seems our only way. In order to understand the Crypto currency, first we need to understand why crypto currency was invented and why currency in the first place is required.
2. FROM BARTER TO CRYPTO
When humans settled in civilizations, the necessity of goods marked the birth of the Barter System; it means the exchange of goods for goods. This system wasn’t efficient as it was dependent on the coincidence of the goods. Quickly people realized this wasn’t efficient so the mode of exchange was changed to coins made up of metals. With evolution, humans understood metals and chose gold as a standard means to back their paper money. Since gold’s unavailability in some countries and its limited supply, governments understood it can’t be relied on for a long period of time. So the USA along with other countries in 1971 ended the money backed by the gold standard.
The value of money today is based on our trust in the government. This trusted money is called FIAT money. But the fact that fiat money is centralized, it gives powers to the government to control it as they like. Best example is the scrapping of 500 & 1000 Rs notes by the Indian government in 2019. The whole economy crumpled in just a night. People’s hard earned money was become worthless by one decision of the government. That’s why we need a currency which is non-influential by governments or called decentralized currency.
3. GENESIS BLOCK
2008 was seen as the year of the global financial crisis. Economists pointed to it as the most serious financial crisis since The Great Depression. World saw the crash of the leading banks , financial institutions, burst of the housing market bubble, thousands of people lost their jobs, life savings , and the bankruptcy of the Lehman brothers. Coincidentally in the same year a white paper was published by an anonymous person by the name SATOSHI NAKAMOTO called “Bitcoin: A Peer to Peer Electronic Cash System”. This white paper contains a 9 page explanation of the block chain system, which had the potential to change the financial system of the whole world. The simple idea of transferring money or storing the value over the internet without involving a banking system was a revolution in itself.
First block was mined by Satoshi Nakamato on 3rd January 2009 which started the block chain network hence it was called the “GENESIS” block. The receiver of the first bitcoin transaction was cypherpunk Hal Finney who created the first reusable “Proof of Work” system in 2004. Finney had downloaded the Bitcoin software on its release date and received 10 BTC from Satasohi Nakamoto. First known bitcoin transaction happened when a person paid 10000 BTC for 2 pizza’s. (3.3 billion Rs at the time of writing) . Since then 22 May is celebrated as Bitcoin Pizza day. Nakamoto is believed to have mined 1 million of Btc’s.
4. BIRTH OF ETHER
Bitcoins internet popularity gave birth to a lot of other cryptocurrencies. One which has more potential and revolutionary is ETHEREUM. The story of how ETH was founded is equally interesting. Vitalik Buterin, a Russian kid was playing the game World of Warcraft and one day he realized that his favourite sword was changed by the game company. That’s when he realised the cruel powers of the centralised system, so he went on to make a decentralized network called ETHERIUM and its token ETHER.
5. TECHNICAL ADVANCEMENTS
Crypto currency is based on a technology called blockchain. Instead of trusting the centralized system it is easier to trust the technology. A blockchain technology comprises Mathematics, Computer-Science and Cryptography. The blockchain is a public ledger that records the bitcoin transactions. Each block contains a hash of the previous block upto the genesis block. Thus tampering the blockchain is next to impossible.
- Bitcoin has in total 21million coins supply of which 18.7 is already mined while Ethereum has unlimited supply.
- Market cap of Bitcoin is $858,62B and price of 1 BTC = $45693.1. Market cap of Ethereum is $357.76B and price of 1 ETH = $3,053.26 ( at the time of writing)
- All time highs of Bitcoin is $65000 while of Ethereum is $4196.
6. MINING
Bitcoin depends on the Proof of Work , which means various computers race to validate a transaction and upon successful validation they are rewarded Bitcoins. Initial reward was of 50 btc’s which gets reduced in half every 4 years. Today the mining reward is 6.25 Btc. Ethereum is based on the Proof of Work mechanism but it is adopting the Proof of Stake. Instead of all computers solving the same problem in POS mechanism, each computer(chosen at random) stakes its Ether, solves the problem and gets rewarded. Thus reducing the cost and time. Eth mining reward is 2Eth per block.
7. PROS & CONS
8. INVESTMENT
Since Bitcoin is giving higher returns than the stock market, the institutional investors are flooding their money into the cryptocurrency. Among the top Bitcoin holders are
1. MicroStrategy : $3.3 billion
2. Tesla : $1.50 billion
3. Galaxy Digital Holdings: $522 million
9. The ARGUMENT
Bitcoin decentralizes the finance system but ETH decentralizes the Apps and services. For analogy BTC is decentralizing money but ETH can decentralize the whole Internet. In the changing world our data is the most important that’s why we require decentralizes apps and services.
- Eth is more scalable. Mining a bitcoin requires a lot of computational power but ETH uses a method called sharding where the data is divided and mined and recombined as a block making mining easier and scalable for large transactions.
- Smart contracts : We have to say bye to the hustle bustle of the paperwork system, with Ethereum network contracts like buying homes, can be programmed and automatically done without any middleman required. These smart contracts will change the working of the Voting, Banking, Stock Market, Farming and Education sectors.
- Dapps: We all know how Google and Facebook sell our personal data to earn money and in return they violate our privacy. That’s why Dapps or Decentralized Apps should be used, Dapps aren’t run by a centralised community or person. Ex- OPUS is a widely used decentralized Music app.
Imagine paying the OLA cab driver and the whole money reaches only to the driver but not to the middle man or OLA company. That’s what Dapps do. They cut the middleman.
Advantages of Dapps are-censorship resistant, no down time, block chain based.
- Defi: decentralized finance : Bitcoin is a cryptocurrency, but Ethereum is programmable cryptocurrency. Various contracts, Investing deals, Pension applications can be processed without any paperwork. It can be done by just programming the code in the Ethereum network. For ex- for sanctioning a loan several documents and service agents are required, but with the Ethereum network if we satisfy all the necessary conditions which the Ethereum network will keep track of , the loan will be sanctioned automatically & instantly. Thus reducing time and money.
10. THE PARALLEL BEAUTY
On another note BITCOIN and ETHEREUM cannot be compared as they both are not to compete with each other but just the fundamentals of the blockchain. And Crypto currency is just the one bit data present on the internet while Blockchain technology is the whole Internet.
To compare: if BITCOIN is a galaxy which has thousands of companies as stars, then ETHEREUM is the UNIVERSE which contains thousands of galaxies and billions of stars.
BEHIND THE SCENES:
The 3.3 billion Rs Pizza.
The Stock to Flow Model of BTC, predicts its price accurately.
THE EVOLUTION OF HUMAN AND CURRENCY.
The GENESIS block mined by SATOSHI NAKAMOTO
Adoption of Bitcoin
The S-curve shows the adoption rate. Bitcoin has the fastest growing adoption rate than any other invention done till today. Faster than the Internet.
“What can’t kill Bitcoin, makes it stronger”.
– Mark Wittkowski
