What is this thing called Bitcoin ?

Bitcoin story is full of masala , it has mystery / drama / money / power / politics, every ingredient for making of a Hollywood flicker.

It started with 2008 crash of financial institutions, wherein banks simply refused to honor their commitments citing heavy losses in sub-prime investments (read it as investments with no collateral).

This led to a gentleman named Mr Satoshi Nakamoto ( by the way, this person is a mystery and nobody has seen or met him) to ask as to why do we need banks for money transfer in the first place? Why can't we transfer funds in a peer-to-peer fashion with no intermediary involved? Such a technology could be cheaper and faster too. So he set out to make a protocol, using virtually all the existing technologies to form a process which was immutable ( one that cannot be edited), trustless, secure and rewarding. He named it Bitcoin and released the whitepaper in 2009. 

The technology backbone behind Bitcoin is called Blockchain technology or Distributed Ledger technology DLT. 

So, what happens here is that the transactions done every 10 minutes are recorded into a block and this data is distributed to a large number of nodes worldwide. Each new block formed ( technically called as 'mined') has a linkage with its predecessor. This makes the chain immutable. Miner of the block has no connection with the ones carrying out transactions. All the data saved is in the form of a crypto graphically encrypted hash, which is signed using a pair of public and private keys (digital signatures).

Also, there was no initial supply of coins to the system but every block mined would get the miner a reward of 50 Bitcoins. These bitcoins were then traded by miners to general public in return of fiat currencies , like USD / Euro etc. 

Perhaps Satoshi knew that generating 50 bitcoins every ten minutes would release too many coins in the market, so he hardcoded the program to 'half' the reward to miners every 4 years. Thus, bitcoin mining reward reduced to 25 bitcoin and then to 12.5 bitcoins by 2016 and in May 2020 it will come down to 6.25 bitcoins only. Total number of bitcoins that will ever be mined is 21 million and already 85% of them have been mined. Thus, as bitcoin's demand will grow in coming months, its supply growth will keep on decreasing which is likely to lead to exponential rise in its price.

But where ever there is money how can politics be left out? 

Ease of transaction and other features of Bitcoin, made it a favorite of many for cross border transactions which led to a fall in profit of banks. But more than profits, governments realized that they are losing their power of control on currencies. In a peer-to-peer transaction, all the intermediaries like banks / clearing house/ federal bank/ representatives etc are removed. Many governments around the world have put barriers to use of Bitcoin and other cryptocurrencies. Like, Reserve Bank of India (equivalent to federal bank of US) has not banned use of crypto but prohibited its banks to deal in it.

Success of Bitcoin resulted in many new cryptocurrencies being launched like Ether, Ripple etc , each with its own set of advancement and advantages. 

Currently, price of one Bitcoin is approx USD 10,000 ( it went upto almost 20k in Dec 2017). 

Isn't it surprising that one pays this huge amount of money to own a coin one will never be able to touch! Such is the power of virtual money and in the times to come, it is only likely to rise further.

Bye for now. I'll be back with some interesting stories on Blockchain & crypto tomorrow.

Ashish.