What is Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

What is  Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

 Greetings, friends!

Can you imagine a thing- the value of which was zero around ten years back

and today, its value has touched almost 15 lakhs!

I'm talking about Bitcoin, which has recently touched its all-time high price point

due to which it is being talked about in the market and the media again

So, I thought this would be the right time to write an educational blog on it and explain to you what Bitcoin is what s its history?

Merely 12 years ago, on 31st October 2008, a person named Satoshi Nakamoto published a paper on the Internet.

What is  Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

Satoshi's main motive was evident from the first line of the paper

A version of electronic cash that would allow payments to be sent directly from one party to another party without going through a financial institution

Cryptocurrency is a digital asset over which central banks or financial institutions have no control or regulation

For instance, the US dollar is controlled by the central bank of the US. The Pakistani Rupee is controlled by the  State Bank of Pakistan.

But there is no central bank or any main financial institution that controls the bitcoins/cryptocurrencies

Back then, cryptocurrency was merely an idea in the mind of that person. But now, there is trading worth lakhs and crores on its crypto exchange

just like shares are traded on the normal stock markets

To understand the paper of Satoshi and the context of cryptocurrency, we will have to understand some concepts of our economic history

Our financial systems are based on trust

The currency notes and coins have value in our society because they are guaranteed by the government and the central bank.

There is a small, but an interesting story in this context

After the Second World War, America became the most powerful country in the world and the rest of the countries had to align their currency with the US dollar

And what was the US dollar aligned with/guaranteed by? A reserve of gold.

What is  Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

The actual value is that of gold or silver. But it is not practical to carry gold or silver around in your pocket

The currency notes were printed for convenience. But the US did away with this gold standard rule back in 1971

After that, the central banks of the rest of the countries could print their notes as per their wishes

But what do cryptocurrencies and Bitcoin have to do with this?

It helps you to guess how powerful the government and the banks- especially, the central banks of the country are as far as monetary policy is concerned

The fact of the matter is that when you deposit your money in the banks, you give the banks permission to play with that money, in one sense.

What is  Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

Making use of these deposits, the banks give loans to companies and individuals

This is what fetches returns, that is, interest on the money that you have deposited

Very recently, we have seen that these banks use these savings and deposits in a very irresponsible manner

It happens quite often that banks give loans to big industrialists without performing adequate checks and then these loans become bad debts/NPAs

And who becomes the victim in such cases? Depositors like us.

Those in favor of the Bitcoins and cryptocurrencies are so because they do not want the government or the central banks

to exercise so much control over their money or currency

Do you now understand the original idea/vision of Satoshi?

Satoshi imagined Bitcoin as an alternate financial system

which would be based on software technology and would be outside the control of third parties

You might be able to recall the Global Economic Meltdown of 2008

Mega investment bankers like the Lehman brothers had become bankrupt

What is  Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

Cryptocurrencies were born right after this scenario

Bitcoin was the first to arrive. And then many other cryptocurrencies surfaced- Ethereum, Litecoin, and Ripple

In fact, at the beginning of the year, more than 2000 cryptocurrencies were available on the internet

Let us move on to the main point now: How does crypto- technology work?

If truth be told, to understand this, one needs to know advanced mathematics and computer science- which I don't have

What is  Bitcoin ?| How Bitcoin works and why is it so popular? | Sohail Khan| part 1

But if you want to start investment or trading, then basic knowledge would suffice

Let us take the example of Bitcoins

There is one public account in digital form, of all the bitcoin transactions- this is called a 'ledger'