Demystifying Digital Currency: A Journey into the World of Blockchain and Beyond | by Tharmeekan Sivarasan | Nov, 2023

“The power to create money is a power that should be held by the people, not by a central bank.”

Digital Currency: A Leap into the Future

Digital currency refers to any means of payment that exists in a purely electronic form. Digital money is not physically tangible like a dollar bill or a coin. It is accounted for and transferred using online systems.

A variant of digital money already exists in society today in the form of cash held in online bank accounts. This digital cash can be sent to others or received from them, and it can also be used for online transactions. To facilitate these transactions, a central authority must maintain a centralized ledger to record the transactions and update each individual bank account.

Double Spending Problem — An unsolved mystery in the past

Imagine you have a digital file that represents a dollar. In a system without proper safeguards, such as a bank, maintains a ledger to ensure each unit of currency is spent only once, a user could potentially duplicate or copy this digital file, allowing them to spend the same dollar in multiple transactions. This would undermine the integrity of the currency and the trust in the system. In the absence of a central authority, preventing double spending in decentralized digital systems proved challenging. This is why a purely digital, decentralized form of money, which doesn’t rely on a central authority for approval, is considered unfeasible.

Double Spending Problem Illustration

Bitcoin: Transparent, Pseudo-Anonymous, and Decentralized

An individual or group under the pseudonym Satoshi Nakamoto published an open-source project outlined in a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” This revolutionary decentralized cryptocurrency, entirely digital, aimed to solve the double-spending problem without relying on a central authority. Bitcoin’s transparency, pseudo-anonymity, and decentralized nature set it apart from traditional banking systems. Bitcoin is currently the most well-known and widely circulated cryptocurrency.

Upcoming chapters of this series will delve into the technical implementation and explain the process through which this decentralized solution became possible.

The Advantages of Cryptocurrencies: Empowering Individuals and Revolutionizing Commerce

Cryptocurrencies offer a myriad of advantages. It provides users with complete control over their funds, eliminating unnecessary middlemen (aka Banks) and offering cost-effective transactions. Its digital nature allows for additional programming layers, transforming it into “smart money.” More importantly, Cryptocurrencies open the doors of digital commerce to the unbanked and underbanked, fostering financial inclusion on a global scale.

Once the majority of the population develops trust in cryptocurrency as the preferred medium of exchange, it could lead to a transformative shift in how people perceive and interact with financial systems, ushering in a new era of decentralized and digitized finance.

“The basis of economic and human progress is trust, trust in one’s fellow man.” — Richard Nixon, 37th President of the United States

This article does not constitute investment advice, nor is it an invitation to purchase any crypto assets 🙂