Weather check: Bitcoin back in hot

2021 has already seen one major event and now it is seeing another. While the excitement around the GameStop fiasco just started to settle, the wind around cryptocurrencies started whirling yet again thanks to the huge investment of Elon Musk’s Tesla.

More into the concept, working and current state of cryptocurrency..

In order to understand the whole concept thoroughly, I prefer starting right from the beginning.

Blockchain technology can be defined as a whole suite of distributed ledger technologies that can be programmed to record and track anything of value. Apart from being the basic technology that powers cryptocurrencies such as Bitcoin, it’s decentralised nature and basic property of storing information in blocks which can only be accessed but not tampered proves useful in any medium that needs storage and verification of data.(Example: Walmart used the concept of Blockchain technology to improves it’s quality check.)

Providing a decentralised database, or “digital ledger”, of transactions that everyone in a network of chain of computers (a network that must approve an exchange before it can be verified or recorded), a blockchain uses cryptography to ensure security.

Every time a new transaction takes place and is approved by the chain of computers, a new block pertaining to the transaction is added to the chain of already existing chain of blocks.Interestingly, once a block is added to the chain, it by no means can be altered hence establishing itself as a very secure and reliable technology. Existing blocks can be referred to depending on the disclosure properties of the chain, but can not be altered.

Simply put, cryptocurrencies are like digital currencies that do not have a physical form. They can not be physically acquired, instead help in peer-to-peer transactions and their safety is ensured using cryptographic algorithms hence the the name cryptocurrencies.

There are various types of cryptocurrencies like Bitcoin, Ethereum, Dogecoin, Litecoin etc.

Bitcoin is a cryptocurrency that can be exchanged like any other form of digital currency in a peer-to-peer network, worldwide and this transaction takes place with the help of Blockchain technology.

The blockchain records every bitcoin transaction that has ever happened.

Here is how the bitcoin works:

  • While sending or receiving bitcoins, you/the party involved announce it publicly to the network where the network’s ledger can be updated by who ever is keeping track of the chain.
  • Required information to be announced (if you are the sender) is:
  • Your account number
  • The account number of the recipient
  • Number of bitcoins being transferred

Once the transaction has commenced, the transaction is added to the current block.In order to add new blocks to the Bitcoin Blockchain, miners perform what is called proof-of-work. A new block is summoned every time a miner comes up with a new winning proof-of-work which is basically solving mathematical problems, which happens roughly every 10 minutes. Every time a miner wins the race to add a block to the blockchain, 12.5 new bitcoins (as of now) are created out of thin air and are awarded to your account.

Safety in cryptocurrencies is ensured using cryptographic hash functions (SHA 256 in the case of Bitcoin) and digital signatures. Specifically, the security is ensured using keys that are chunks of information that can be used to make mathematical guarantees about messages.

The wallet (an account created on the bitcoin network) is linked to two unique keys:

  1. Private key
  2. Public key

For example, I send a message to the network announcing that start of a transaction, this is signed by my private key which only I have access to and nobody else can replicate. This signed message is now sent to a Bitcoin network and everyone can use my public key to authenticate me and so, the network knows to add my transaction. In other words, if the public key checks out with my private key, it is proof that the message was indeed something I sent.

Bitcoin is a deflationary type of a currency.It has an upper limit of 21million and currently, 18.5 million bitcoins have been mined. The downside to this is that, the more bitcoins are mined, the complexity and standard of the mathematical problems increases and also the number of bitcoins produced on each solve is halved.But on the plus side, having a limit increases it market value exponentially.As of March 4, 2020 one Bitcoin was worth 8,790.51 USD and all the bitcoins in the world were worth nearly $160.4 billion.

Manipulation and fraud in bitcoins is not something we have never heard of, but thanks to the recent involvement of corporations: Tesla, Apple and MasterCard, which was a wake up call to many such huge establishments, the rate is expected to go down drastically.

Let’s take a look into each one of the above mentioned corporations and how they are adopting their systems to cryptocurrencies..

Much like the title, Elon Musk CEO of Tesla surprised the world when he invested 15% of Tesla’s cash i.e. about $1.5 billion into Bitcoin resulting in a surge of above $44,000. Not only that, Tesla also announced that it will be accepting Bitcoin as a payment in the future indicating the changing dynamics of the world into a total cashless, digital mode.

After considering the various possible reasons behind this move, I realised it all came down to these major points:

  1. Preparing Tesla for the future — as mentioned above, Tesla will be accepting Bitcoin as a legitimate mode of payments.
  2. The scarcity of it all- having an upper limit of 21mil makes the bitcoin scarce and hence investing in a major chunk of it before its value surges seemed to be another factor.
  3. It is a great Hedging mechanism- it is wise to have certain amount of cash liquid and the rest invested and working for you. Otherwise, you loose the purchasing power. Investing cash into real estate and such sectors is one way to do that but the downside to it is that the market might crash at anytime and the uncertainty is high.
  4. The general ethos of Elon and Tesla for basically existing is to help move humanity forward into a more sustainable and advanced world. Although there are critics that say call bitcoin a waste of electricity and data, on the contrary, most of Bitcoin’s energy comes from renewable resources of energy.

Surprise surprise! Apple Pay can now be used to spend bitcoin! Unlike Tesla, Apple did not buy bitcoins to show it on the balance sheet but integrated it into Apple Pay. Apple partnered with a company called Bitpay , a payment processor or a middle man that works in the MasterCard network by issuing its customers a Bitpay debit card. This card can be used to for loading Bitcoin and Bitcoin cash and can be spent in anyplace that Bitpay is accepted. The problem with this system was that, not everybody accepts Bitpay so instead, Apple will now let you download the Bitpay debit card onto your Apple Pay as a result the bitcoin can be spent anywhere that Apple Pay is accepted.

Mastercard has integrated bitcoin into it’s network except, it did not “buy” any bitcoins, instead it integrated it meaning MasterCard customers now have a choice to accept bitcoin payments.

The recent change in trends will slowly attract all the fortune 500 companies and that’s what’s going on in the world and with Bitcoins!

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“I have no special talent. I am only passionately curious” -Albert Einstein