Cryptocurrency, powered by blockchain technology and co-powered by the Governments of respective countries is revolutionizing the world of finance. A digital currency that's decentralized, secure, and transparent, allowing for more secured transactions. With blockchain's powerful Security, cryptocurrencies like Bitcoin and Ethereum are leading us towards a new era of modernization. Thus, Welcome to the future of Finance !
ITS HISTORY !
The first and most well-known cryptocurrency, Bitcoin was introduced in 2009 by Satoshi Nakamoto. Since then, thousands of cryptocurrencies have emerged such as Tether, Etherum, Dogecoin etc., each with unique features and quite popular.
HOW DOES BLOCKCHAIN TECHNOLOGY WORK ?
Blockchain technology is a decentralized, distributed ledger that records transactions securely and transparently. Here’s a concise overview using an example to illustrate the key concepts:
BASIC STRUCTURE
- Block: A container of transactions done by user.
- Chain: A series of blocks linked together.
- Node: A computer on the network that operates transactions, just like a multi-tasking Manager !
- Transaction: A digital record same like the one we have in real life - Receipts !
COOL FEATURES OF BLOCKCHAIN !
1. Smart Contacts
- Smart contracts are like digital robots for agreements. They are self-executing contracts based on the terms of the agreement written directly into lines of code by user and bank. Operating on blockchain technology, smart contracts automatically activate and execute the agreement when predetermined conditions are met, reducing any chance of fraud.
2. Tokenization of Assets
- Tokenization is the process of converting physical and digital assets into digital tokens on a blockchain, just like a real life CBDC token currency. These tokens represent ownership of the asset of the user, allowing secure transactions.
Imagine the example of turning your property and assets of your previous generation into a digital token that can be easily traded on a blockchain marketplace.
3. Consensus Mechanism
- These ingenious protocols, like Proof of Work and Proof of Stake, enable the networks to verify transactions securely and efficiently without needing a central authority (Bank). This mechanism acts like a heartbeat in the whole system which makes it the most important one among all !
LET'S UNDERSTAND WITH AN EXAMPLE: How Cryptocurrency functions using Blockchain Technology ?
- Plot:
- Ramesh wants to send 1 Bitcoin to Anaya.
- She signs the transaction with her private key.
2. Internal Networking:
- The signed transaction using private key is shifted to the blockchain network.
3. Validity terms:
- Nodes (Computer internal networks connected to Bank) validate Ramesh's transaction by checking:
- If Ramesh has sufficient balance.
- Ramesh's digital signature or proof on documents.
4. Mining Process:
- Proof of Work (PoW) is the complex mechanism used by Bitcoin to validate transactions and secure the network.
- Miners are important participants in the blockchain network, specifically in networks that use the Proof of Work (POW) consensus mechanism, such as Bitcoin , Etherum etc.
- Miners usually tend to solve a cryptographic code and stuff to add up the block to the blockchain (Proof of Work) like how we usually unlock our Cellphones using a simple Pattern or a Password !
5. Confirmation:
- The transaction is confirmed once the block is added to the blockchain.
- As more blocks are added, the confirmation level increases, making the transaction more secure and reliable for the other users connected to the network.
HOW IS THE PRICE DECIDED ?
You are planning to dive deep into the World of Cryptocurrency but suddenly you realize that how is its price allotted ? Is it same like Stock Market of Wall Street ? Yes, its almost the same !
Cryptocurrency prices are determined by the ongoing interactions of buyers and sellers in various cryptocurrency exchanges worldwide.
These exchanges facilitate trading where individuals and institutions buy or sell cryptocurrencies based on market demand, specific news, developments, and economic factors.
CONCLUSION FOR TODAY !
Cryptocurrencies are rewriting the rules of finance, taking us into an era of ultimate modernization where transactions are decentralized, secure, and accessible to everyone using a form of TOKEN. This form of currency is also commonly said as "Token Money", but its completely different from which you use in amusement park and is a part of practical & serious money. With the potential to disrupt traditional banking systems of Cash and Online payment (UPI in India & PayNow in SE Asia), they are also a part of the coolest evolution which we are exploring in terms of handling the Finance department.