The evolving Bitcoin story (with video)

As Bitcoin forked (divided) giving birth to Bitcoin Cash, the debate related to legality of cryptocurrencies resurfaced. Also surfaced was the realisation that Blockchains underlying such currencies have larger social applications.

The evolving Bitcoin story

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  1. The virtual domain of Crypto Currencies : A cryptocurrency is a digital asset. It works as a medium of exchange using cryptography, and secures the transactions and controls the creation of additional units. 
  2. How are such crypto-currencies produced? These are classified as a subset of digital currencies. Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, and not by any one individual. The speed is decided by the initial settings, and publicly known parameters.

  3. Central Banks versus Cryptocurrencies : In centralized banking systems (RBI / US Fed etc.), governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. But in decentralized cryptocurrency, governments cannot produce new units. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto. No one knows who he/she is, and if it is one person or a group.
  4. The Bitcoin : It became the first decentralized cryptocurrency in 2009, and ever since, many more have been created. Such new ones are called altcoins. Bitcoin uses decentralized control as opposed to centralized electronic money/centralized banking systems. And just like we have IPOs, now we have ICOs or “initial coin offerings” in which firms issue digital tokens of their own.
  5. Blockchain system : The decentralized control is related to the use of Bitcoin's blockchain transaction database in the role of a distributed ledger. A blockchain is a distributed database that is used to maintain a continuously growing list of records. Each record is called a block. Each block contains a timestamp and a link to a previous block. A blockchain is normally managed not by a central authority (like Google or Facebook or Amazon – who have their huge databases) but by a peer-to-peer network collectively adhering to a protocol for validating new blocks.

  6. Strong, safe, no central control : Blockchains are designed to be inherently resistant to data modification. Once a data is recorded, in any given block it cannot be altered retroactively without the alteration of all subsequent blocks and an active agreement of the network majority. 
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  8. Use of a “Blockchain” for social and general purposes : Hence, a blockchain can serve as "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically." This can have enormous (positive) implications for governing large public systems of many nations, by making them hard to tamper. Bitcoins, thus, are experiments in themselves of how to maintain a public database (the “blockchain”) without anybody in particular, a bank, say, being in charge.

  9. Ethereum digital currency : It allows all kinds of projects, from video games to online markets, to raise funds by issuing tokens — which is private money that can be traded and used within these projects. Followers expect that they will give rise to decentralised startups that will challenge today’s technology giants, such as Google and Facebook.
  10. We stand divided now : On August 01, 2017, in typical Bitcoin style (no hype, no noise), a group of Bitcoin activists and entrepreneurs created a second version of the crypto-currency. This was the “Bitcoin Cash”,  and it didn’t collapse, but gained traction immediately. To begin with, one unit of “Bitcoin Cash” had a price of $460 and tokens worth $7.6bn were in circulation (which we can consider its market value overall). This figure surely is  much smaller than Bitcoin classic, for which the relevant figures were approx. $2,700 and nearly $45bn.
  11. Forking, Birthing, New currency : Such a split that gives birth to a new baby – in technical terms – is called a “fork”. This Bitcoin fork came much faster than the world had expected. But those who know the inner workings, knew how stressful the civil war inside it had become. For the past two years, there was a constant ‘argument’ over the future of Bitcoin. Since it is a digitally mined currency, the capacity of the system to generate more was limited (by initial parameters set by the unknown founder). So the question of how to increase the capacity of the system was the core issue, and as of now it could handle only up to seven transactions per second. Typical credit cards systems can handle several thousands. Confused technically? Download and read what the creator Satoshi Nakamoto said here
  12. Speed went up as initial parameters had kept it low : Now after the “fork”, the new version can process more than 50 per second, but in all ways works much like the original one. So will Bitcoin Cash be more than just another “altcoin”, as the many existing clones of the crypto-currency are called?
  13. Chinese computing power at work : Bitcoin Cash is backed by Chinese “miners”, which are firms that provide the computing power to confirm payments and mint new digital coins. Over the past few years, a large part of the overall processing power of the Bitcoin system had gotten concentrated in China. These Chinese miners had been unhappy with how the original system has been managed by its developers. As both systems develop traction, a battle is likely to evolve to claim who becomes the “real” Bitcoin.

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  15. Hundreds of such digital currencies : More interesting is what the fork might mean for the broader ecosystem of crypto-currencies, of which there are now hundreds. It was assumed that Bitcoin will remain the dominant cryptocurrency always, because of network effects. The recent split shows that this need not be true. All that a new group may need is (a) the will, (b) the skills and (c) huge computing power to create a new digital currency. In fact, you can start a digital currency too. All you'll need is the right technical skills, computing power, a model with initial parameters, and lots of passion and guts!
  16. Richer Bitcoiners : The fork has made Bitcoin holders richer: they get an amount of the new version equal to their holdings of the old sort; and at least for now, both together are worth more than the old one alone. There could be another split in November now.
  17. Legal status of cryptocurrencies : The legal status varies a lot across the world. Some nations have allowed their use and trade, others have banned or restricted it. Various government agencies, departments, and courts have classified bitcoins differently. The China Central Bank banned the handling of bitcoins by financial institutions in China during 2014, and in Russia where cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.
  18. The naysayers abound : To some it looks like a total scam (say, like the tulips of yesteryear), but to be fair, bitcoins have real uses in the real world. They can buy everything. Bitcoins also seem to behave like gold-holders. They both distrust governments! Also, no central bank is in charge of bitcoin. Bitcoin swung from more than $1,100 in late 2013 to less than $200 a year later, before climbing, in fits and starts, to its current dizzying heights. Dr Kirit Somaiya has raised a query in the Parliament regarding the legal status of Bitcoins (read here)
  19. How many are there? What about the regulation? As of July 2017, there were over 900 digital currencies in existence. In order to follow the development of the market of cryptocurrencies, indices keep track of notable cryptocurrencies and their cumulative market value. Traditional financial products have strong consumer protections but nothing like that with Bitcoins! That is why Regulators have often warned against their use and some have taken concrete regulatory measures also. 
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  21. Full Video Explanation is given below. Enjoy :)

Video explanation below

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Bodhi Booster: The evolving Bitcoin story (with video)
The evolving Bitcoin story (with video)
As Bitcoin forked (divided) giving birth to Bitcoin Cash, the debate related to legality of cryptocurrencies resurfaced. Also surfaced was the realisation that Blockchains underlying such currencies have larger social applications.
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