OPINIONMAKERS@The Hush Post: One must be tired of hearing about bitcoins, blockchain and cryptocurrency these days. Let me take a leap and make an announcement: What if I say that bitcoins could gradually do to the paper currencies across the world what internet very quickly did to A4 sheet, a notebook and a pen.
People who do not have inclination to create money would find these words shrouded with fear. The same fear people had in using internet then, many still have now. It is very unusual kind of fear, some would perceive it as an act against the nation, while others would see as some technical gimmick, some would lecture “ paise aise hi nahin kamaaye jaate, ghisna padta hai” whereas others would say “tum log to raton raat amir hone ke sapne deakhte rehte ho” which with the recent upheaval in the crypto-currency price is an apt adage. But what is it really about this new currency that has people talking about it across various time zones and whether this actually is a currency or is it some kind of ponzi scheme running around. Let us put it through a scrutiny of a fair analysis (and mind you I am a libertarian, so this analysis is sure to hurt sentiments of many conservatives).
So the first bullet one fires point blank is, What is bitcoin?” The answer is “one of a product of a revolution” so what is this revolution? Answer is “Blockchain”. We will come to blockchain later in the article. Next question which pops up Is bitcoin really a currency?” Some say it is a bubble and it is going to burst very soon which is bad news for the investors, while others say that it has an arbitrary value and people are going all frenzy and trading in it. The fact is people have accepted it as a value of exchange that is the only thing which gives it the value, unlike government backed currency which it imposes on its citizen with the means of coercion, bitcoin has no coercion value behind it. It has values because people have accepted it as a medium of exchange and there are a million of them, merchants, travel companies, stores, online shopping platforms and the list is exhaustive.
Now comes the question loved by skeptics: How can you have currency not backed by the government?” In reply, I can say people who understand money in the present context will be able to appreciate the brilliance of the bitcoin currency generation. What the present governments do is they issue a piece of paper (mind you what you have got in your pocket is a paper, without promise of payment, it has no intrinsic value. A promise, governments have broken countless times) in lieu of gold they have kept with them (which, strictly speaking has no intrinsic value either without human effort to keep it such). Now see the brilliance of bitcoin through an analogy. Suppose a village in agrarian setup where everybody depends upon produce of land to survive. Consequently, they would need water to irrigate their fields and there is only one tube well to supply them water. In the beginning, they would orally make the arrangement to wait for their turn to irrigate the fields according to the need, season, area of the irrigated land owned and other factors. Since it would be very complicated process to calculate who would get how much water in which season, heated arguments and fights will ensue. To manage the process they would appoint a pump operator who would keep track of the supply to the appropriate person. Everything will smoothen out except for the part when pump operator is sick, on holiday, or is hands in glove with powerful people of village, starts taking bribe, indulge in favoritism and there would be no one to question him. A person who controls water controls the society in agrarian setup. Fed up with the system one hamlet of that village decides to take matter into their own hands. They decided that the portion of water which would be issued to that hamlet will be managed by the people of that hamlet and every family of that hamlet would carry its own ledger and each allotment would be written down in all the ledgers of that hamlet, which would reduce the chance of wrong allotment and dependency on the pump operator. If someone needs water urgent, he would go to the chaupal of that hamlet and announce the occupancy of pump for that time which would be registered in all individual ledgers. This way the whole process has been democratised. This is the way bitcoin works.
The main thing why bitcoin emerged today and why not a few decades ago has much to do with the Information Technology and the Internet. The metaphorical ”announcing at the chaupal” is internet connecting one person with every other person on this planet. The main point is with traditional currency government and banks would tell you how you would spend your own money, how much money and they get their cut in every transaction. Bitcoin frees you of all this. It is money with all the history of transaction details in every computer that own the bitcoin software. With every computer verifying the transaction it is stored there forever, and this whole process takes a fraction of what traditional money would take to transact.
Next question which arises “then how is this money created” answer is through ‘mining’. In the previous example there was an issue of scarcity of water in the village and only cutting edge technology to obtain water was from tube well. Suppose a gentleman X innovates a new method of irrigation like drip irrigation method or some other person discovers a new source of water is a matter of endless wandering and pure luck. It would be registered in the books of the natives and a new source of water or innovative idea which in turn render the innovator or discoverer richer than before and in turn free villagers from the monopoly of tube well, which is centrally controlled system. Same is the role of bitcoin in the fiefdom of fiat currency. In bitcoins, we have operationally very expensive mathematical problem to solve. Many dedicated machines called miners are employed for this purpose. It consumes a lot of electricity and data. The problem is solved employing cryptographic hash functions. Whosoever solves the problem conveys the information to others and the information is stored in every ledger as to that particular person has mined a new bitcoin and they will accept his ownership over that particular coin.
Now the biggest question of all, suppose we obtained all those bitcoins, how do we spend them? What buying capacity do they hold? Which merchant will accept them? First question first, in every money transaction we have sender, receiver and the amount to be sent. In bitcoin the process is little different. We have an application called wallet to store the bitcoins. That application generates two keys for any transaction private key and public key. The process is called public key cryptography. Public key is your address. Private is your personal code to verify transaction. With computer with its host of problems the main problem is of security. How would you recognise the incoming data is from the person you are expecting to send you or how would you ascertain the proper delivery of money. These keys play important role there. The message (outgoing data) would include three parts i.e. digital signature, inputs and out puts. This, according to their assigned function would carry the information to all ledgers about transaction; calculate the whole string of transaction to calculate amount in the senders account and where money is to be sent.
Now coming to the very first thing we discussed i.e; blockchain. This new technology has the potential to change the whole setup as to how we humans interact and the magnitude of its discovery is no less than that of the discovery of fire or wheel. Bitcoin is but a little part of what blockchain has to offer and even bitcoin is a small part of the ever growing community of cryptocurrencies. The changes these new technologies offer would be quick and ubiquitous. I hope we do not fear but embrace them with open arms. (The writer, Divyabir Singh is pursuing Ph.D in criminal law & is a fan of this avantgarde digital currrency)