An Introductive guide to bitcoin and its misconceptions

Overview

This blog is about to clear the misconception about of bitcoin. In this, we will see what is actually bitcoin and which technology makes bitcoin popular.

Assumption about Bitcoin

People have many wrong assumptions about bitcoin that it is just an investment system where they invest money and get good returns. But, that’s not true.

Bitcoin is the new innovation in technology and this innovation is not less than the Wright brothers invention who invented the airplane.

bitcoin-assumption

Right now you must be laughing and thinking that “bitcoin and innovation !!”. But, after reading this full blog you’ll agree with me.

Problems of Traditional Currency

“As many as 576,000 Iraqi children may have died since the end of the Persian Gulf war because of economic sanctions imposed by the Security Council, according to two scientists who surveyed the country for the Food and Agriculture Organization.”

bitcoin-problems

My intention is not to blame anyone but, I just try to explain that this type of traditional currency system that is controlled by the central authority is forced to take a shocking and ruthless decision and we people have to bear an impact of the decision.

Current Banking Issues :

1. Banks have become synonymous with crises and crashes due to depression and fractional reserve banking :

Latest real example of bank fraud,scam

Another real example of bank fraud,

Kingfisher airlines owner vijay mallya fraud with SBI bank .

scam-statistics

Some of this frauds are caused by employees of bank itself.As per survey, 450 employees were involved in this types of fraud in different types of sector banks during April-December 2016, a total value of fraud was Rs.17750.25 crore.

So, we lost our valuable money just because of this type of bank failures.There are so many real examples of bank frauds but no one cares about this problem or its solution? But with new technology adoption we can solve this type of problems. So, we will see how bitcoin solve this type of problem in later part of blog.

2. Double Spending :

Double-spending is a potential flaw in a digital cash scheme in which the same single digital token can be spent more than once.This is possible because a digital token consists of a digital codes that can be easily copied.

As with counterfeit money, such double-spending leads to inflation by creating a new amount of fraudulent currency that did not previously exist.

Let’s , try to understand double spending problem with simple example :

We take example of e-mail system to understand double spending. Let’s assume my e-mail id is niravmodi@example.com and I send a photo to pnb@example.com and send the same photo to bob@example.com. As I had the original image, I used the same image to send another.

Now assume that this type of technique I use in digital cash system where I convert my national currency to digital cash and as I am a software programmer I just need to crack that digital cash code. Then I use the same code to generate new copies of digital cash.

And in the last if you want to prevent this problem in digital cash you have to be dependent on third party who authenticates. But, this is not a proper solution here also we encounter problems like trust on third party, failure of third party etc.

Satoshi Nakamoto & Bitcoin

“SATOSHI NAKAMOTO”, the person or group of persons that observed these major problems of traditional currency.

Before 2008, people only dreamt about the digital currency because they believed that the concept of digital currency was not possible in real life.

But satoshi nakamoto came up with the solution of traditional currency problem in October 2008 and published a white paper of BITCOIN.

People and Government were shocked after reading this white paper.

Because satoshi nakamoto were the first to solve the double spending problem for the digital currency.

They solved this problem with the support of BLOCKCHAIN technology.

We will go deep in blockchain technology in my upcoming blogs because our main motive is to aware people about the blockchain technology and its power.

Bitcoin

Bitcoin is a cryptocurrency and a digital payment system.

Bitcoin is the first distributed digital crypto-currency.

Bitcoin system works without single administrator or central bank.

The network is peer-to-peer and transactions take place between users directly, without an intermediary.

Bitcoin was invented by Satoshi Nakamoto (“an unknown person or group of people”) and released as open-source software in 2009.

How Bitcoin solve above Problems?

  1. How bitcoin can solve problem of shocking and ruthless decision taken by central authority of traditional currency system?

    I know, You are getting some answer to this question from the introduction of bitcoin but let me try to explain,First of all, the bitcoin is not owned by the central bank or single administrator.

    So, any decision is not taken by a single authority.

    It is owned by people who use it. Everyone has its own bank.

    So, people can take the decision on its own no one can control their money and no one has rights to track their money.

  2. How bitcoin solve bank frauds using blockchain technology?

    Bitcoin blockchain has a distributed transparent ledger.The ledger is public for all to access. But, no one can modify data in this ledger because of its immutable nature.

    So, try to understand both the above lines :

    First distributed transparent ledger means the transaction data cannot be stored on a single system( or we can say the server ). It is stored and distributed on connected nodes (PCs) in the bitcoin blockchain p2p network. Everyone who is connected to this network has a transaction ledger copy so anyone who tries to modify data can be detected by others who have the same copy of this ledger.

    By blockchain’s immutable nature, the data on bitcoin blockchain cannot be hacked.

    By using implementation of blockchain technology in bank transaction system they can stop frauds like fraud done in the pnb bank.

    Why I am saying this because blockchain removes the middle man and bring trust in the system.

    All transaction are stored and validated by computer codes and secured by the cryptographic algorithm in a blockchain.

  3. How bitcoin solve Double spending problem?

    As we study further bitcoin has the support of blockchain that prevents the double spending problem.So, you might have a question that how blockchain solve this double spending problem, Right?For that, we have to go deep into blockchain technology which I will discuss in next blogs but for now I just simply say that blockchain prevents double spending by its block structure mechanism.

Misconception about Bitcoin and Blockchain

bitcoin-blockchain

Here is the major misconception or confusion of people that bitcoin and blockchain are same and if bitcoin don’t get success then can’t even blockchain get.

But, that’s not true.

Bitcoin currency and other cryptocurrencies are one of the famous applications of blockchain that runs on the blockchain.

The blockchain is a very vast technology and most promising technology of future.

I hope this knowledge of about bitcoin and blockchain are helpful for you and stay tuned for my upcoming blogs.

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Mahesh Rajput Blockchain Developer

Mahesh Rajput is a Blockchain Developer at Yudiz Solutions Pvt. Ltd. He is passionate about innovation and technology. Research about latest technology and things are always the best part of him.

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