Blockchain technology is basically a way to maintain records in public using cryptography and open source algorithms. How that happens is unclear to me, I don’t fully understand the concept of blocks very well and how cryptography plays a role in all this. I also don’t understand what exactly are these entities for which we can keep records on blockchain. I kind of understand keeping a record of bitcoin transactions but beyond that, when it comes to keeping a record of identities of people or fishes in a supply chain, I don’t understand how it works.
One application of Blockchain is Bitcoins, decentralized digital cryptocurrency. If we can move beyond the uncertainty of how it works (bitcoin mining comes to mind), answers to why is this new currency required and what are its additional advantages are much more clear.
Why do we need a new currency?
Traditional money works on trust in governments and banking institutions. We trust them to regulate the value of currency, protect us from fraud etc. But that trust has eroded or at least strained due to many local and some global financial crises. So Bitcoin is an attempt to make a currency which is not regulated by humans at all. It is regulated by an algorithm and market forces. Honestly some more information is required here to believe that this would be a better system, but many people who can understand the algorithms have vouched for its credibility and effectiveness. The algorithms being open-source is a big source of trust in the system. I mean, the entire code can be seen on github.
What are the other benefits of bitcoin
Apart from it being, somehow, immune to fraud, Bitcoin has some other advantages as well:
- It is completely transparent. The inner workings are not clear but it is said that each and every bitcoin can be uniquely identified in the system and its entire history can be traced right to the moment it was first mined. This has could naturally have many positive as well as negative implications.
- It is pseudo-anonymous. Again the inner workings are not clear but while each bitcoin can be uniquely identified as moving from one account to another, the identity of the account holder can be kept completely anonymous. It is said that it is as anonymous as using cash. I actually made an account on a cloud-based bitcoin wallet myself and all I needed was a valid email-id to receive and send bitcoins. There are several bitcoin ATMs from where I can buy bitcoins in exchange of cash. Hence reasonable anonymity can be maintained.
- It is (almost) free and it is instant. Currently if a person in America wants to buy something from a Chinese retailer, process of transferring money is very cumbersome and the banks charge up to 12% fees. Bitcoins is like sending an email, there are no charges, except for transaction fees which is much smaller and it is instant. One cool application of this is that companies can actually pay employees by the second instead of every 15 days since processing a payment is inexpensive.
- Anyone with internet can have a bitcoin account. Traditional banking systems have left out more than half of the world population unbanked. They cannot enjoy the benefits of digital currency and have to rely on much less secure cash. Bitcoin can reach everywhere internet can reach.
There are many more that I must be missing here, but I guess these are significant enough to make you want to try it. And thats exactly what I did, I tried to open a bitcoin wallet and buy some bitcoins. I chose to go with Coinbase, a cloud based wallet. Here’s how that worked:
Step1: Signup, email gets verified so you need one of that. Any fake id would also work
Step2: Add address. You can add any address here but while setting up payment you’ll anyway have to add the correct mailing address.
Step3: Before you can buy Bitcoins you need to add a payment method. You can add a debit card, setup wire-transfer or Paypal. This step reveals your identity. If you wish to remain anonymous you can buy bitcoin from an ATM (there are many in New York) or receive bitcoins from someone who already has them in exchange of something.
Step4: Even mobile verification is compulsory before you can buy bitcoins.
Step5: Buy Bitcoins, they charge a 4% fees. I am not sure if they charge something when you simply want to send/receive bitcoins. Also, you can sell your bitcoins in the market to convert them to any currency.
This is super simple. You just need the public key of the account you want to send bitcoins to. You need to login to you wallet before you can send the money. Behind the scene your wallet is actually liked to your private key, in early days you had to know the private key, now you just have to login to your wallet like a normal human being.
For example I can share my wallet key or bitcoin address with anyone to receive bitcoins. This is the send screen:
Coinbase has a nice app which makes it very easy to pay someone using the QR code.
So that’s that.