I wasted a hundred bucks, and they weren’t misspent. I left them in my pocket while enjoying the rain. How easy is it to lose the value you deserve only after much hard work?

Is that it, would you let rain, fire and forgetfulness throw you at a loss? That is what i asked myself. So is going digital the way? Digital transactions through, net banking, atm card and e-wallets of your bank. But how can anyone guarantee the security of money until I have total control over it?

I dreamed of a world where we could perform all our transactions without having the banks to keep an eye over every move. A digital platform which could directly make the sender and receiver meet without an intermediary. Imagine the speed of transactions without middlemen such as banks.

Thanks to cryptocurrency the world without mediators now exists. I was more than excited to learn about cryptocurrency as i was done with losing money to my carelessness. Moreover, i was tired of providing my details to banks for being able to transact my own money.

Help me! I cried when I sat down for the first time to understand cryptocurrency. Surprises never stop you see, and I somehow made it to the last line of the article. It read ‘click on this link to understand- how cryptocurrency works in today’s scenario’.

The next article was about blockchain. I had tolerably decided that once I make it through, I must reduce the painstaking process of understanding the blockchain and cryptography.

Here is once and for all article to understand all, from cryptocurrency to the blockchain.

So let’s get started:-

Cryptocurrency like any other currency in the world has monetary value. However, it can only be used to transact digitally. Cryptocurrency or cryptos are not available in the form of hard cash or coin.

Then why do we call them cryptos and not digital currency? Digital currency can be the broader term meaning that cryptocurrencies are a type of digital currency.

Since we are talking about the name, let us see what is with the name cryptocurrency. As we see it consists of two separate terms Crypto and currency which implies that it is a currency which is cryptographically secured which brings me to another point.

Why do we need cryptography to secure any currency?

Let’s take the example of Ether which is a cryptocurrency used on ethereum blockchain.

Why do we need cryptography to secure the transaction of Ether and not the currencies such as Dollar or Euro? Dollars, Euro or the currencies that we use today are called Fiat currencies. Banks or governments back fiat currencies.

Moreover, the security of any transaction of Fiat currency is taken care of by mediators, such as Bank or governments. That takes us to the primary feature of cryptos that they are backed by none which means that the transactions taking place are neither supervised nor mediated by any middleman.

To be precise only the sender and receiver stay in the loop.

Hey! If there are no banks which means no bank accounts then what about the medium of the transaction they are not even hard cash which one can directly deliver. Read again I said no banks, banking will still be there but how? The good news about cryptos is they don’t really need a bank to do banking. In fact, no currency in the world really needs a bank if it can transact online. When you transfer money through net banking or debit card, no real transfer of money is involved. No, need to panic what I mean is money in your account is merely a data entry that represents value. The data or figures (numbers) in senders account, reduce and in receivers account they increase.

Same happens in case of cryptocurrency. Oh good, Lord! I haven’t still answered the question, why do we need cryptography? However, if everything can get handled by sender and receiver (‘peer to peer’) why did we ever need mediators?

Well, you are not going to transact only once and with just one person. For example, you have $2,500 in your account, and you send John who is in the USA $2,000. Now you receive a request from your old friend Daniel who is in Poland for $1,000. Since only John and you were aware of the earlier transaction, you could easily promise Daniel $1000 who is entirely unaware of the earlier transaction. The same money, in this case, has been sent to two different people scam detected ! and this is what we refer to as the problem of ‘double spend’.

To solve this problem and bring trust in the system, we need intermediaries or banks in the first place; they maintain the record (ledger) of all the transactions performed via an account. Now your bank knows that after sending John $2,000 you are only left with $500 and hence you can’t rationally send Daniel $1000. A message saying ‘invalid transaction!’ is sure to pop up as the bank has abstained you from sending the money you don’t have xD.

That I guess pretty much answers the question, why do we need anyone to oversee a transaction if everything can get handled by sender and receiver?

Now, let us understand what cryptography to secures transactions.

Oh! No, not again this sentence puts forth another argument, why are we talking about removing banks and that too when they help us keep the system reliable?

Huh! Here comes the twist, banks are necessary (or maybe they were necessary) as long as they keep the system reliable. However, after several incidences where banks exploited the money we put in them they lost their own credibility and reliability put apart the system.

Why do we put our money in banks?

The security of money in the form of cash or coin became an issue in the early world, and so money was put in banks to ensure its safety. Gradually banks became the location for all monetary operations. People found it easy to send money from their repository to somebody else’s without having to bring money home. Without a doubt, there was a fee involved for the comfort and security provided. With time banks began to have control over our money and found a way to make money from money. They now started giving money deposited by a person X to person Y in the form of a loan, and if the person X asked for money, they gave person Z’s money.

Banks made vast amounts through interest from loans, and this slowly became a business. You might have an argument to make that your bank pays you when you make deposit your savings. Wait for a moment lets understand this in a better way say you deposit $100 and the bank pays you $3 at the end of each year. That’s not it when a bank lends someone $100 you deposited the bank earns somewhere around $10 depending on the interest rate which differs widely across banks. Out of the $10 the bank earns it utilises 30% to pay their employees and makes a 40% profit on your money. Then pay you with what’s left. Malicious middlemen, I call them. What if you can get a 7% interest and borrower can get the loan at 7.5%? That’s a whole another topic we’ll cover it in our future articles.

Today we have countless banks with huge buildings which give away loans to big corporates; at times the honchos run away without paying back.

We think that banks run at debt but whose money do banks give as loans; our money as we are the only source. In short, we are the one to be at a loss without even lending any money.

Can’t really believe this? Let me remind you of the subprime mortgage crisis or the financial crisis of 2008. Big banks along with investment banks played around with common man’s hard earned money.

This financial crisis impacted the whole world and forced governments to regulate banks. However, Satoshi Nakamoto who remains unidentified realised that greed is limited to humans and so he thought of replacing banks with a technology. He used cryptography. This technique does not remove human interference but actually stops them from getting access to private data by encrypting it.

What’s that? The kind of Cryptography used in blockchain has two main things: Private key and public key Private key Take this as a password to access your account. It’s different for every account. Anyone with the access of that password will be able to access the account. Whatever transaction user do gets encrypted by this private key and added to the blockchain.

Public key Take this as a user name for your account. Any transaction you do with your private key can be seen by anyone but it’ll show your public key. Now when you want to receive money/assets you’ll share your public key and others can easily transfer you from their account.

Cryptography is the technique of hiding information. It has a very broad use but in the blockchain, it is used by users to be anonymous and be transparent at the same time.

Sounds toooo confusing! doesn’t it?? Let me help you with an example.

Let’s say you want to buy something online:-

Traditionally - You have to create an account, provide your personal details, attach your bank account and “bam” now you’re ready to get judged. Sorry! ready to trade. Below is just a glimpse of how many companies get access to your data when you do the transaction on PayPal and it’s with most of the companies out there.

Blockchain - All you need is private and public keys. Everyone would be able to see the transaction done by which private key but no one will know the person behind it. So now you can use the service as the service is attached to that public key and only you have the access to that account (private key) keeping all your personal information private. Isn’t that great!

Remember we talked about maintaining ledger or record of transactions, it still needs to be done since money on a digital platform is just data entry as we talked earlier. Now the obvious question is what if someone gets hold of the ledger and how will someone update a transaction if it is in a non-understandable format?

To understand how ledgers are made and maintained, blockchain comes into play. Believe me; understanding blockchain is the easiest thing in the world.

The blockchain is a chain of blocks hahaha! I know you must have seen that coming. Now to delve further these blocks store information and once a block is made it remains intact. So even if someone gets hold of any information, they won’t be able to tamper it.

How blockchain works?

Assume a room full of lockers, each locker assigned to an individual and a guard to keep eye on them. Nobody knows what someone else has in their locker except the guard. If the someone decides to commit theft he/she would only need to involve the guard. The poor sufferer will never be able to prove that the theft happened.

What if things were different and everything was first put on display and everyone took record what each one had. If the theft happened then the thief would easily be caught as he could practically not involve everyone in the theft. This is what blockchain does it distributes all the records(ledgers) so that no one could commit a trickery. Anyone can access these records and every transaction happens when every one verifies it.

Enough articles are available to explain to you through examples, here let’s understand what all happens when happens to your money when you use blockchain.

I am talking of Ethereum as I find it more versatile than Bitcoin and there has been enough discussion on it already.

The gate to the blockchain world opens with an exchange so-

1. You need to get a wallet (e.g.metamask, Ledger Nano S, Trezor) and get your unique address to store your Ethereum.

2. You then go to fiat to crypto exchange. After creating an account, you buy 10 Ethereum for whichever fiat( dollar, euro etc.) you have.

3. You send your friend #Y five (5) Ether. Let us see what happens:

It’s just a normal transaction of sending ether to someone. There much more you can do like take loans or buy gold

As shown in the above gif, when you place a request to send 5 ethereum

The system makes a demand of your request rather than directly initiating the transfer. Once the demand broadcasts on a network of connected (peer to peer) computer, the critical point to note here is that only your address (public key) is all that computers (also called Nodes) can see, thanks to cryptography. As discussed earlier every node verifies whether you actually have Ether you have requested to send. These nodes then validate the transaction by using algorithms. Now the verified transaction is put in the pool of several other transactions. A block full of many such verified transactions and stationed. Now your transaction will be successfully initiated without anyone getting to know the entities involved in the transaction.

Now, if you have been reading it thoroughly, a question must be popping up and down your head. These computers or nodes might access your information.

For every transaction, remember your public key that is all anyone can see. Security doesn’t end here, the sender does a digital signature (encryption with private key), and it is different for each transaction. Crypto keeps its promise of providing transactions security and privacy at every step.