Cryptocurrency: What was? | What is? | What will be?
“Privacy is a MYTH just like democracy” — A very controversial statement, and yet it holds a good space in people’s minds while doing any work. And while we have many protocols and systems in place to maintain a certain level of privacy now, it wasn’t the case back in the late 20th century. With the evolution of an individual’s online presence, privacy was seriously compromised, and there was a need for a more encrypted system where everyone gets a room for themselves. Although many such systems were introduced, work done by David Chaum, an American Cryptographer, in the 1980s was noticeable on a large scale, and it paved the way for what is today known as ‘Cryptocurrency.’ His research cup is full with papers on anonymous communication, trustworthy voting system, digital signatures, Near eye system, digital cash, etc. His work on “Blinding Algorithm” is largely celebrated as a base case for the web-based encryption & cryptocurrency recursive world. This algorithm then became a solid base for advanced electronic currency transfer which was also termed as “Blinded Money”. His later work with eCash and Digicash, though not sustainable as it had issues with the centralized system, was very impressive and inspired many personnel in the cryptocurrency field. Two of them who made a significant impact were Wei Dai (conceptualized virtual currency architecture: b-money) and Nick Szabo (Invented Bit Gold).
Following the crash of Digicash in the 1990s, a new digital cashing system that was in harmony with the centralized system was introduced. This system is what we now call an electronic payment system that is connected to the banking system and works with them. Apps like Paytm, Paypal, Phonepe, etc are typical examples of this. We can conclude, though not entirely, that the crash of Digicash was the main reason for the inception of this ePay system which we see nowadays. Even then some cryptocurrencies were still active. Russia’s WebMoney and America’s e-gold made great progress in the late 1990s and early 2000s. Their progress was followed by a major downfall which was ultimately followed by their termination. The main reason for this was online security issues as the number of scammers and Hackers increased exponentially. They can be seen as a byproduct of advancement in the computer field and online presence. Security reasons, along with the pressure from financial governing bodies, made the existence of Cryptocurrencies impossible.
“Responsibility is the price of freedom” — This famous quote by Elbert Hubbard perfectly defines the status of cryptocurrency today and where it is heading towards. First let us now properly define what cryptocurrency in the modern world stands for — A virtual currency secured by rigorous cryptography and other online security methods which involve only two parties, sender and receiver. With the introduction of Bitcoin by Satoshi Nakamoto in 2009, a new era of cryptocurrency came into effect. This marked the beginning of a more secure system and the inception of an ideology that bitcoin introduced to this modern generation.
In 2009, when Nakamoto initially introduced bitcoin with a $0 valuation, Nakamoto coined the term “Freedom from Financial Institution” in his research paper — Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin is now the most famous cryptocurrency and is gaining popularity exponentially. The main reason for this growth is bitcoin addresses a certain ideology and the loopholes which are there in the conventional system where all the transaction is carried in the presence of a third party (Body other than sender and receiver). No matter how big or small the transaction is, the presence of this third party inevitably introduces a whole new system of trust issues between sender, receiver, and the third party involved. Everyone has to adhere to the rules and regulations which are there in a particular financial institution or the governing body. Upon this, the fact that the people in power can alter the system anytime introduces a whole new challenge to the people who are using the system. A great example of this is the Demonetisation that took place in 2016, a decision that effectively dismantled about 80% of the active notes at that time. Many people have to go through a rigorous process just to get a minor work completed, which in ideal cases don’t need that much attention or dedication. There are many complications like this that roams around any financial institution. It doesn’t matter whether the institution belongs to a developed country, developing country, or underdeveloped country.
Highlighting the challenges posed by these financial institutions, Nakamoto published the research paper, which started with the following lines — “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” His intention was clear from the first line of the paper, and this formed the ideology, or we can say a part of the base on which this sustainable model of the new cryptocurrency world stands. Now we have seen many cryptocurrencies before, and we have also seen that there were many security issues that were active around them. So how is this new model of cryptocurrency different from the rest?
Nakamoto knew that in order to succeed with this model, it must have two factors — An ideology (discussed above) with which people can relate to, and the model should address the security issue which earlier models faced. And that’s why he introduced a chain system rather than a central system (Decentralized system) which is now known as the Blockchain system. This system addressed issues like double-spending as well. His definition of this system clearly mirrors the idea behind the same — “The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.” I am not going to dive into the technicalities of this system. Just to understand the system from outside the bubble, one can easily draw a parallel line between the system of email transfer and transaction in this new model. Everyone has an Email ID, but only the person in the discussion knows the password to that ID. Upon this, the system is arranged in a Linked list structure, which implies that the next node remembers the mapping address from the current node, which helps in order transactions.
With all these updates, Bitcoin introduces a sustainable model of cryptocurrency. Today, we have a variety of them along with many platforms which are working in order to make the exchange of cryptocurrencies extremely easy, even for an individual having no prior knowledge. Platforms like CoinDCX, WazirX, CoinSwitch Kuber, etc are making the life of a crypto investor very easy. We also have platforms that are building a crypto investor social community where anybody can communicate and showcase their plans and current investments. Despite having a sustainable model, these currencies still have a volatile nature. The irony is that the volatility of this system helped it to attain this exponential growth. And although everyone loves exponential growth, people also have to witness a major downfall under different circumstances. Building a community is one way to reduce this volatile nature. Platforms like Moving.so and many other social networks are helping to connect the social factor to this new cryptocurrency world.
Nakamoto’s model introduced a sustainable upbringing of cryptocurrency in the modern world. Today we have various cryptocurrencies other than Bitcoin. Ethereum, Litecoin, Cardano, Polkadot, Bitcoin Cash, Stellar, etc are some of the major ones. Now I am not going to discuss each of them in detail as this article is not about that. One thing to highlight here is that everyone is performing well in the market, even with the ongoing pandemic.
WHAT WILL BE
Building on a sustainable base will obviously result in constructive growth and increased valuation. This development is a major challenge to conventional bodies as their existence is in question. The main idea on which cryptocurrency is built poses a challenge to the conventional system. This is the main reason why banking systems are not supporting the crypto platforms, and this poses a major challenge to the crypto world. Developments are taking place to address this challenge and come up with an ecosystem that will give a common platform to both sides and can work in harmony with each other. Building proper infrastructures and also preserving the initial idea of not involving the third party is the need of the hour. High returns attract many people. This, along with a distributed profile investment, is proving to be profitable to many. Increased participation either in the investing part or proper exchange/transaction will increase the value of crypto, and this is what cryptocurrency will be in the future — A new virtual sustainable, stable growing currency.