Cryptocurrency and

Blockchain Technology
Siva Prasad
 Functions of money

• A medium of exchange

• Measure of Value

• Store of Value

• Transfer of Value
Why Is it a medium of exchange
• Readily accepted

• Durability

• Portable

• Recognisable

• Divisible

• Fungible

• Hard to Counterfeit
 Evolution of Money
• Barter System

• Commodity Money

• Metallic Money

• Paper Money

• Bank Money

• Cryptocurrency
When I want buy a Suit

No Mutual Trust
1. I Pay on Paypal 3. Paypal confirms
Payment
2. Paypal
requests
money from
My VISA
7. Sends my Suit

4. VISA
requests
money from
My account Clearing house

5. My bank
6. Sellers bank
transfers
receives money
amount
 Problems with this model

• Financial system - Opaque and transparent

• The intermediaries charge a certain fees for their services

• Exchanges are error prone

• Financial exchanges are very slow

 Inherent problem

• Buyers and sellers use intermediaries because they may not trust the
other party, but they trust the intermediary will assure that the transaction
is completely faithful
Blockchain Technology
 Who keeps track?
• When I deposit Rs. 10000 into my account, my account balances
increases

• When I withdraw Rs.2000 from my account, my account balance

decreases

• Who keeps track of all the transactions in my account? -> The Bank

• The Bank maintains a ledger where all the transactions are getting
recorded
My Ledger with the bank
 Problem

• What if the ledger maintained by the bank gets destroyed?

• What if someone within the bank manipulates the ledger?

Distributed Ledger
 Distributed Ledger
• My account is being maintained by multiple/distributed ledgers

• Manipulations/fake transactions on one one ledger will be invalidated by

the others

• When I make a deposit I announce to all the systems maintaining the

ledger that I am making a deposit so that every ledger can be changed

• Similarly when I make a withdrawal or transfer Money to someone, I

announce to all those maintaining the ledgers so that the ledger can be
updated
 Distributed ledgers

• How do the systems maintaining the ledgers know that it is me and

authenticate the transactions are being made by me

• To authenticate every transaction, I use a special key to authorise the

transactions that I make; hence, if the key is being used the systems know
that I am making the transactions and the according the information in my
ledger (account balance) get registered
Cryptocurrency
 Cryptocurrency

• Digital/Virtual currency

• Intangible asset

• No central issuing authority -> Not a fiat currency

• Examples- Bitcoins, L itecoin, Namecoin and PPCoin

 Bitcoins
• Launched in 2009

• Started by an individual or group known under the pseudonym Satoshi

Nakamoto

• Similar to Unacademy Credits -> you earn when you watch more lessons
similarly, you earn Bitcoins when you solve complex maths algorithms

• Bitcoins are “Mined”; How fast you mine depends on hash rate

• Higher hash rate -> you can solve more algorithms/ solve at a faster rate;
 Bitcoins
• Bitcoin is randomly assigned to a system;

• To win a lottery the more the lottery tickets you buy higher the chances of
winning similarly higher the hash rate, higher the chances the bitcoin will be
allocated to you

• Why doesn’t RBI print infinite currency and circulate it? -> More the currency
in circulation lesser is the value

• Similarly, Bitcoins that can be mined are finite -> there will be only 21 million
bitcoins in total (i.e available for mining)

• When you earn bitcoins they are stored in “wallets” just like Paytm
Computers mining Bitcoins
Bitcoin will be randomly assigned to
one of the computers

Siva’s
Computer
Remember Distributed Ledger?
Remember Distributed Ledger?
• When my system gets assigned a bitcoin, all the other computers will
update that I have been assigned a bitcoin in their own ledgers

• Similarly, when I transfer my bitcoin to someone else using my key, the

transaction will be authenticated by all of the systems and all the ledgers
will be updated accordingly

• Hence, the bitcoin since it was originally mined by to the current holder of
that particular bitcoin; all the transaction details are maintained by these
ledgers hence no scope of fake transaction or fake bitcoin
 Benefits
• Easier fund transfer

• Anonymous

• Minimal processing fees

• Difficult to counterfeit

• Blockchain technology ensures safety from manipulations

• Safe from demonetisation (😜)

 Drawbacks

• Anonymity -> Money laundering, terror funding

• Volatility

• Theft or hacking-> If someone gets access to your account they can

swipe it clean/ use it for themselves -> nobody to complain to

• Not fiat currency