Understanding Crypto Currency

Crypto Currencies are a subset of virtual currencies which is decentralised and protected by cryptography.

Virtual currency is a digital representation of value that can be digitally traded. It functions as a medium of exchange, and/ or a unit of account, and/or a store of value but they are not legal tenders and are not backed by the government.

Deciphering Distributed Ledger Technologies and Blockchain

  • Consider a small group of school friends maintaining a list of transactions among themselves.
  • What this small group does is instead of holding this list in one single computer or in the notebook of one of the group members or authorising some outside authority to maintain and update the list, all of them decide to maintain a separate copy of the list in their personal computers.
  • Hence every time there is a transaction, the rest of the members verify it and once it is verified by all, they update their list.
  • Further, to make sure that none of them changes records of the past transactions in their personal list, they decide to place each transaction as a block and to stack it one after the other in a sequence.
  • As a result, no one can tweak the details of any past transactions because the overall sequence will not match with sequences held by others.
  • Also to make sure that no other person outside the group gets to know the details, they devise a code (a cypher) for all their communications related to the list.

This is how Distributed Ledger Technologies (DLT) and in particular Blockchain works. The DLT involves the use of independent computers (also referred to as nodes) to record, share, and synchronise transactions in their respective electronic ledgers. The distributed ledger obviates the need for keeping the data centralized.

Blockchain is a specific kind of DLT that came to prominence after Bitcoin, a cryptocurrency that used it. Cryptocurrencies such as Bitcoin use codes to encrypt transactions and stack them up in blocks, creating Blockchains.

Wide Range of Applications

A transaction under DLT is the transfer of “value” from one to another. This value could be any record of ownership of assets — money, security, land titles — or the record of specific information such as information about one’s identity or health information, etc. That is why DLT has applications in several fields.

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