Bitcoin hit an all time high of $60k recently and everyone is excited about it. But one thing people do not understand and unfortunately, also don’t try to understand is the usefulness of Bitcoin. Bitcoin is useful because of the technology it is built on – the Blockchain.
A blockchain is simply a publicly verifiable record of all the transactions in a network with some features that make it tamper proof. Blockchain was created to solve the problem of double spending. One problem with asset transfers in the digital world is the ability to copy and paste and the ease of digital asset creation.
Consider this, my friend Jide did a beautiful graphic art. I am interested in this art, but I want it for myself alone. I want it to be mine, not his anymore and not anyone else’s. I pay him 30 thousand Naira to give me the art. If this was a physical painting, it would have been a seamless transaction, I would just pay him and take the work of art off his hands to my home. However, in the digital world, he can easily send me a copy. This is called double spending and the possibility of this complicates the transaction.
Let us explore how a blockchain would solve the problem. Jide would create a Non Fungible Token (NFT) on a blockchain, a digital asset that represents the art work and transfer that asset to me. Once transferred, whatever copy of the artwork he has is rendered counterfeit. This happens because the blockchain records that transfer and this record is available for the public to see and verify. This record is also not falsifiable or editable. If someone tries to delete that record, the blockchain automatically and immediately replaces the entire block containing the record with the correct information.
Therefore cryptocurrencies are digital assets that exist because blockchain has created an environment such that, once a Bitcoin is sent for example, the Bitcoin itself actually changes ownership, and it is not merely copied. This change in ownership is recorded publicly for anyone to see and verify and it is not falsifiable.
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Victor Nnadi is an Independent Economics Researcher and a Securities Trader.