“It’s never going to happen” Alice sighed.
Bob confronted her “You give up too soon!”. Alice had played by the rules all her life. She strived for A’s in her school. An excellent student, an obedient daughter, and a sweet friend. Yet, she felt something was missing, especially when she was around Bob.
Bob had a tough time at school. His aim was to get done with it. His interest lies in ideas, and books. He often had no sense of his surrounding. Lost in his world. He hardly cared for what he portrayed in front of others. Yet, he was conscious when he was around Alice.
Alice has an idea. A platform that incentives people to produce and share renewable energy. Though this already happens through tradable renewable energy certificates, the system lack transparency. It involves intermediaries who help in generating, verifying and trading certificates. This system increases transaction costs and even leave room for fraud. The process is also time-consuming since the producer gets paid only after 60 days.
“ This seems to the problem bitcoin is solving..” Bob said.
“Bitcoin ?” she asked.
“Yes, Bitcoin. It is a digital currency. It works with no intermediaries instead trusts the people in the system.. I can send bitcoin to our friend Peter who stays in Egypt within minutes for a low transaction fee. The traditional money transfer systems are costly and take days to transfer.” he explained.
“I find it difficult to comprehend. Trusting the people? Can’t they cheat?” she asked.
“Consider you, Peter and me. We form an agreement with each other to use a new digital currency called Batcoin. To start off, each of us gets 50 Batcoins. We can trade them for physical goods or services from each other. When a transaction occurs, we announce it to each other, and everyone records it in their ledger book. If I try to change my ledger book, then it would create inconsistencies. The system will support what majority says is correct. As our community grows and more people get added to the system. The demand for Batcoin increases and hence its value. This is what happened with Bitcoin.” he clarified.
“But, what if the majority in the system tries fraud ?” she questioned.
“Theoretically, it is possible to hack the network through a majority attack. The likelihood of that happening is very low. Because of the built-in security features, it requires huge computational power. Bitcoin is open source, experts around the world contribute to improved security .” he said.
“Built-in security features?” she asked.
“Once you send bitcoin to someone. It gets broadcasted throughout the network. The system groups such broadcasted transactions and writes it into a block. This new block is only added to the system after it gets mined. Mining is like a trial and error process. Imagine you are trying to log in to your brother’s laptop. He has given you one clue; it is a movie’s name. You begin the trial and error process by trying different movie names. Similarly, for every block, we need to find a password like value called nonce. This value is dependent on the data in the block. The system rewards the first person to find the nonce with bitcoins. These get minted out of thin air. Once a miner finds nonce, other people in the network can confirm it easily. Like once you find the password, your friend can log in to the system and confirm the password you mined. Newly mined blocks get linked to the previous blocks. These series of blocks is what makes Blockchain. We can trace any point in the chain back to the very initial block. Now if you want to tamper a block you also need to tamper every other block succeeding it. This process requires you to find nonce again for every block which requires a lot of computing power.” he explained.
“So that’s how new coins come into the system. I assume computers which run the bitcoin program does the mining and not people themselves?” she stated.
“You are correct.” he said.
“Wait, what about privacy? Because every transaction gets shared with everyone,” she asked.
“When you register to bitcoin, you don’t give away your personal information such as email or name. Instead, you receive a randomly generated username like ‘1933phfhK3DXvqCn32k2buXY8a’ and a long password.. The username is called public key which becomes your identity. The long password is called private key. There is no way anyone can find out your information from the public key.. You can use the private key to check your balance, send money, etc. If you lose your private key, there is no way to retrieve it back.” he clarified.
“Interesting, but can I convert Bitcoin to USD?” she asked.
“Of Course you can. You sell it at a bitcoin exchange.. As of now (21st November 2017) 1 BTC is worth 7991.49 USD” he said.
“Wow! Who invented this?” she questioned.
“No one knows who invented bitcoin. The inventor used a pseudo name ‘Satoshi Namokato’ on his bitcoin paper published in 2009.” he said.
“What? How can we then trust this system ?” she asked.
“Though he created it, he doesn’t own the system. No one does. The community controls it. The power is with people themselves.” he said.
“Hmmm, but how does bitcoin help us?” she asked.
To be continued …
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