1. Why can’t I just email money?
This sounds pretty simple. If I can attach a photo and email it to my friend, why can’t I just do the same with money? Why are 3rd party resources like banks, or services like PayPal required at all?
Whenever you send email to another person, you type their email address and you communicate directly with that person, similar is the case for instant messaging services like whats app or snap chat. These types of communications are called ‘peer to peer’. Similarly, when you send a photo or document, you attach it to an email and directly send it over. However, you cannot send money this way. You need to use a third-party service like a bank, a credit card or PayPal. Why can’t you just attach money and send it? Why does not it make any sense!?
The reason is that, whenever you do a transfer of ‘value’ between two parties, it needs to be ensured that a ‘real transfer’ has taken place. You need to be able to verify that, both the parties did what they are supposed to do.
Imagine, your girl asks you a present pic of yours. What you do is, you click it, attach it to a mail or send it over an IM and your partner receives it. And that’s where you think the process ends. But hold on, she has not yet exclusive rights over the photo. Now there exist two copies of the photo. One that you sent it over, the other, the original one that is still lying on your phone.
This issue is called the “Double Spend” Problem. Imagine what happens when people send copies of money like photos. This is the very reason, we have 3rd party agencies like banks, credit cards to ‘certify’ that a transaction has been made AND both parties did what they were supposed to do. This system is ‘centralized’ where each bank keeps a record (also known as ledger) of all the transaction that has taken place through them.
2. Double Spend! So now you say poking money is
Hell No! It wasn’t possible until recently till the ‘Double Spend’ problem was solved to a satisfactory level. Before we jump into this amazing world of ‘decentralized ledger’ let’s look into these two #trending words.
- bitcoin: A bitcoin is a type of digital currency that can be bought, sold or transferred between two parties securely over the internet peer to peer. It is decentralized and does not need any type of 3rd party ‘Trust Agencies’ to certify a transaction. These types of currencies are a type of ‘cryptocurrency‘.
- Blockchain: A blockchain is a constantly growing list of records, called blocks, of all the transaction that has taken place in a secured, chronological and immutable way.
The answer lies in these two terms, blockchain and cryptocurrency like bitcoin. bitcoin is the first implementation of cryptocurrency(there are many now). Bitcoin has a global network of computers called the bitcoin network that has implemented this decentralized ledger called blockchain. The underlying blockchain records all the transactions that has ever happened in the bitcoin network. Real-time data of these records are publicly available and multiple copies of the same chain can be found on several different servers. Data is protected using math and cryptography. Each block in the blockchain is also cryptographically linked. Once a transaction is recorded in a block, there is no way to amend it.
3. The blockchain of bitcoin
To be continued …