What is Blockchain Technology and Cryptocurrency (Bitcoin)

•Blockchain technology allows designing a secure way to record transactions and circulate it among signatories members, or any kind of target group with an Internet connection.

It provides a decentralised database or digital ledger of transactions that everyone on the network can see. Or we can say it is a simple way of transaction.

•Ledger => A kind of excel sheet which contains details of your transactions.

•Distributed Ledger => When the Ledger (eg. Excel file) is distributed among friends or on a group network and accessible to everyone on the group.

Therefore, blockchain is nothing but a digital ledger

•Each list of records in a blockchain is called a block.

•In the context of currency, each block stores the place, time, value (rupee, for example) and location of a purchase.

•Every block is linked to a unique ‘digital signature’ of the transacting participants just like physical signature of RBI Governor on Currency notes.

•Every block is distinguished from another through a unique code which is a string of numbers Just like unique numbers on currency.

Verification of Blocks/Transactions:-

•This verifying role is outsourced to several computers(node) on a network — each has the exact same copy of the block.

•These computers verify the genuineness of transaction by solving mathematical problems/algorithms.

•Once verified, the block is added to the chain and becomes part of it.

  • This is added to the ledger and becomes permanent and unalterable (the record can not be changed).

•The blockchain technology is a method that brings everyone to the highest degree of accountability

•As an un-alterable ledger in real time it enables them to track documentation and authenticate ownership of assets digitally.

•The ownership of digital assets of any type, say money, deeds, Government records, financial instruments or art can be securely stored, transacted and tracked.

•All the transactions made are authorized by miners, which makes the transactions immutable and prevent it from the threat of hacking.

•Blockchain technology discards the need of any third-party or central authority for peer-to-peer transactions. Thus removal of intermediaries and reduces cost.

It allows decentralization of the technology

•Cryptocurrencies are a kind of digital currencies based on blockchain technology.

•cryptocurrencies enable transfer of money between parties, without going through a banking system.

•Bitcoin is one of many cryptocurrencies that have gained popularity across the world.

•Bitcoin is not a fiat currency.

•A fiat currency is any currency that has no intrinsic physical value, but whose value is established by government decree. Eg. National currencies like Rupees as their values are dictated by government.

Privacy Protection: The use of pseudonyms conceals the identities, information and details of the parties

Cost-effectiveness: They have single valuation globally, and the transaction fee is extremely low. Cryptocurrencies eliminate third party clearing houses or gateways, cutting down the costs and time delay.

Lower Entry Barriers: Possessing a bank account or a debit/credit card for international usage requires documented proofs for income, address or identification.

Alternative to Banking Systems and Fiat Currencies:

Immunity to Government led Financial Retribution: Governments have the authority and means to freeze or seize a bank account, but it is infeasible to do so in the case of cryptocurrencies

•use in grey and black markets.

•potential use for Illicit Trade and Criminal Activities and can be used for Terror Financing.

•Potential for Tax Evasion.

  • The acceptability of cryptocurrencies as a legal instrument currently varies from country to country; while some are in the process of formulating laws and measures, others are yet to respond to this disruptive change.

•The fundamental attribute of blockchain, which makes it so powerful, is immutability. Each records are distributed and yet making a change in database requires consent of all on the peer group network, which is very difficult to hack.

•SBI leads as the first bank to use KYC and facilitate remittances based on blockchain, followed by banks like Axis, HDFC, ICICI that are implementing blockchain for its KYC and trade finance procedures.

•Blockchain also has potential in solving land disputes cases by making Land records using blockchain.

Insurance Claim:- Cognizant has partnered with insurance providers such as ICICI Prudential Life Insurance, SBI Life Insurance, HDFC Life, Kotak Life and more to develop a secure data-sharing solution built on Corda blockchain platform.

TRAI has proposed draft norms to use the distributed ledger technology or blockchain technology to ensure that only authorised entities are able to send commercial messages to users who have subscribed to them.

  • Other potential sector is supply chain, logistics etc.

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