Blockchain: Thinking to Invest?
In today’s market spree, it becomes quite important to know the maths and physics behind blockchain before diving into it.
Blockchain is a decentralised cryptocurrency, which functions like any other currency except it is not regulated by a centralised authority like Federal Reserve. On a technical note, it is a broadcasted blocks of ledger (A document containing accounting statements), where each ledger holds specified number of entries (Alex pays $50 to Brian). To ensure that each transaction or entry is genuine, each entry is signed and verified using a digital signature of 256 bits. These signatures are secured and protected using RSA encryption so that no outsider can imitate them to list a wrong entry. To know more about RSA encryoption you can take a look at this exciting lecture by Prof. Srinivas Devdas. Blocks are connected to each other using the hash keys, a cryptographic value which gives a unique identity to file or text, of previous blocks. This chain formation between these blocks anoints it with the name “BlockChain”.
As one may wonder how does these blocks are actually formed? The block of ledger in this chain is not formed on its own. It is created by the so called miners, who find a key, which when combined with the entries of ledger give a hash value consisting a specific pattern. If the specific pattern is not found in the hash value, it is trashed and block formation fails. The task is not as easy as it sounds. It takes around 10 minutes to mine a single bitcoin. Considering the thousands of miners involved in bitcoin mining, it can practically take more than a year for a normal miner to dig a block. At this point it is imperative to ask, what do miners get in return? On each block formation, they get specific numbers of newly formed bitcoins, not digitally signed by anyone. These bitcoins form out of thin air. So, we can make a claim here, bitcoins are infinite as new bitcoins are formed after each block formation. To our dismay that is not the case. As number of miners rise so does the complexity of finding the hash pattern that creates the block. The reward for the same lessens for each block formation. Here’s the picture that shows the decreasing trend of bitcoing mining rewards:
The bitcoin is limited in numbers. According to an estimate, no more than 21 million bitcoins can exist. Thinking of grabbing one before they get over :) Those who want to understand social and economic impact of bitcoin impact can follow me. I’ll be releasing that part soon…..Thank You For Reading😀. If you have any question please feel free to ask in the comment section.
A fun fact, I recently invested ₹300 in Dogecoin, a cryptocurrency, and sold the same at ₹400. The investment was small but I accrued a return of 33% within a day. That’s quite a number. The investment was purely based on speculation, so do not get carried away by the return, it was pure luck.
