Simply put, cryptocurrency is a currency system that uses blockchain technology. However, what we mean by currency here is that cryptocurrency is not such a currency. Any cryptocurrency is a ledger or ledger, where once a sale is made, it cannot be changed. This is possible for blockchain technology (I will tell you how it happens later).
This is not a picture of Bitcoin, it is not possible to show Bitcoin in pictures.
The biggest discovery since the invention of the Internet is this blockchain and this technology will be used in everything in the next 10 years.
At the outset I would like to say that many people understand Bitcoin as a cryptocurrency but Bitcoin is a lot like DARPA net where there was no audio or video support and this was the first internet. Bitcoin is a first generation cryptocurrency. It has some very basic features. The next generation of cryptocurrencies can use more modern features like smart contracts. This answer will be much bigger when it comes to smart contracts, so I did not add it here.
To know the answer to how cryptocurrencies are regulated, you need to know how they work.I will tell you how Bitcoin works. Most cryptocurrencies work this way, so if you understand how Bitcoin works, you can understand the rest.
Although Bitcoin was the first cryptocurrency, its theory has been known to mathematicians since the 1990s. However, as a result of the 2008 financial crisis, Satoshi Nakamoto (a pseudonym, no one knows who or what he is) understands that the monetary system must survive at the hands of the government and powerful individuals or corporations. According to him, the division of religions and states in Europe led to the Renaissance, which led to unprecedented scientific, social and cultural progress, and the division of money and government led to unprecedented economic progress. Satoshi said that the government's control has created uncertainty in the market because the market mechanism cannot work properly and as a result we see business cycle (boom, recession, depression, recovery). Some powerful individuals can exert their influence on the economy, colluding with the government which must be stopped. With this, Satoshi wanted to give up the banking system. According to him, the bank is a broker that only keeps our money safe and through it everything is bought and sold. Satoshi thought of a currency that was safe and could buy and sell things directly without the help of these middlemen. For this, on January 3, 2009, Satoshi started the Genesis block of Bitcoin. Before create the genesis block Satoshi was published a Bitcoin whitepaper.
So let's find out what Bitcoin is and how it works.
[As I said before, this part is a bit technical, if you have difficulty understanding, you can leave earlier.]
Suppose you and your three friends Ram, Rahim and Gurdeep go out together once a month. Someone pays your expenses and it is written in a book, at the end of the month. Bitcoin works a lot like this. But in reality there are some problems with this method.
1. How do you verify the transaction has really happened?
Suppose Ram gets 10$ from Rahim. The problem here is to verify that Ram really gets 10$ from Rahim and then to verify that Ram has paid this debt. This problem is solved by digital signature. Any transaction is authorized by this digital signature. This digital signature is a lot like the original signature, but it is almost impossible to duplicate this signature.
This is done by adding a public key and a private key which creates a cryptographic hash function. From this the name of this currency became crypto currency. When you make a transaction, you give the public key to someone else and only you keep the private key. If someone gets your private key, he can take all your bitcoins.
What is this cryptographic hash function?
A hash function is a mathematical function so that you can input whatever you want, but this function will give the output of a certain number of characters. The funny thing is that this output is completely random and with the help of the output you will not find the input. Bitcoin uses the SHA256 hash function.
Suppose you have Hello World, it will output to SHA256.
But if the input is Hello world then the output will be 64ec88ca00b268e5ba1a35678a1b5316d212f4f366b2477232534a8aeca37f3c
Just one character w to w the hash changed completely. But the lengths of the two hashes are equal.
The Bitcoin protocol creates a hash across your private key and your transaction and is called a digital signature. The Bitcoin protocol then drops this signature, your transaction and your public key into another verifying function whose output will not be true or false. If the output is true the Bitcoin protocol will approve your transaction or it will be rejected. Since your digital signature cannot be seen by anyone outside, the Bitcoin network cannot be attacked using the Rainbow table. And if someone attacks Brute Force, he will have to take out your signature from the 2 ^ (256) combination which cannot be taken out even if all the computers in the world are running at the same time in someone's life.
In short, no one can duplicate your digital signature without your private key.
2. If Rahim copies and pastes a transaction again and again, does he get more money from Ram?
The solution to this problem is very easy by adding a serial number before all transactions. If Rahim pastes one line over and over again, the serial numbers of all the lines will remain the same and the Bitcoin protocol will understand that the system is being fooled.
3. Or Rahim will not be able to demand more money but what if Ram refuses to pay?
This problem was solved at the beginning. If Ram does not have 10$ , he cannot ask Rahim to pay 10$.
4. But this time the problem is if Ram continues to borrow after borrowing but later does not repay?
To solve this problem, the record of this account is considered to be money, which means it is Bitcoin. So you can transact using this record. So every day new blocks are added to it and this calculation is updated. So with the help of one bitcoin you can see when some transactions have taken place.
5. Then we are sure that no one will be able to make fake transactions in Bitcoin protocol. But what if someone tries to tamper with this accounting record?
It is almost impossible to manipulate Ledger because it is completely decentralized, meaning that no one has the laser in their hands, everyone has a copy of the laser. If there is a new transaction, the protocol broadcasts it to everyone and you will get it when you update the blockchain. So if someone has to manipulate, then everything has to be manipulated with a laser. Now the Bitcoin network is so big that it is quite difficult to do.
But this time decentralization created a new problem. How do you know if a transaction is being broadcast?
This problem is called consensus problem and it is the biggest problem of any cryptocurrency who is decentralized.
The solution to this problem at the moment is Proof of Work (POW), Proof of Stake or a combination of these two methods. This step of bitcoin transaction is done by miners. However, this mining is not to extract anything from ordinary mines. This means doing a very long number.
In this POW miners run their computers and the Bitcoin protocol allows them to extract a hash whose end is called the gray character.
Suppose the protocol tells minors to find a hash whose last character is 0101000. This time Minor Ra takes the previous ledger of Bitcoin, runs new transactions loudly on it and no matter what number at the end of it all in the SHA256 hash function. The minor who first finds a hash with 0101000 at the end will broadcast his hash to everyone and with that number he gets this hash from Jeter. The rest will look at it and if 50% of the computers on the network agree with it, it will be accepted as correct.
I have already said that input is not available from the hash function. So the minors have to check by dropping one number at a time. No one will be able to manipulate it if they want to because the hash will change if they use the transaction as they wish. This is why POW is so mature and almost impossible to manipulate.
This one is called a new transaction block. Since a new block is added to the old block in each transaction, it looks like a chain and is called a blockchain.
However, this method wastes a lot of electricity. The number of the first miner who finds the hash will be accepted in vain. POS has been introduced to solve this problem but it is not as mathematically as POW. It has some drawbacks and mathematicians are working on it.
Since miners are working so hard, the Bitcoin protocol gives them some bitcoin. This is called mining reward for every successful mining. In the past, people used mining with graphics cards. But now it is done with the help of Application-specific integrated circuit (ASIC) and it is done with the help of thousands of ASICs in huge mining farms.
A mining firm
Now come to our last problem. The number of transactions that can be shown in one block is limited but there are thousands of transactions, so who will leave the car and add the transaction to the minor?
This problem has been solved with the help of mining fee. People pay a mining fee for every transaction. The higher the fee, the earlier the transaction will be accepted. Until a few days ago, this fee was very high, so the miners all increased the block length. As a result, more transactions can be taken in one block and the mining fee has been reduced a lot.
This means that the main issues of Bitcoin are:
Digital Signature
Ledger is the currency
Decentralized
Proof of Work
Blockchain
If you have noticed, you will realize that mining is creating new bitcoins every day. Much like printing new government money. So Satoshi has tied the total number of bitcoins to 2.1 crore and if some number of blocks are created, this mining reward is halved. According to mathematical formulas, this will allow you to mine forever, but the total number of bitcoins will not exceed 2.1 crore. But according to economic sources, this will increase the price of bitcoin day by day to encourage people to mine. This is why Bitcoin, like Fiat currency, is not inflationary but deflationary. As a result, if you are a capitalist or investor, you do not have to worry about it. This fear is not unfounded if you look at Venezuela, Zimbabwe or Argentina.
This is to say that no one can control most cryptocurrencies, not even their creators.
Now your main question is will cryptocurrency ever replace fiat currency?
The answer is not straightforward. Satoshi made Bitcoin to be used as a currency but now it works like digital gold so no one would want to buy and sell with it because Bitcoin Pizza Day: Celebrating the $ 80 Million Pizza Order it could be.
This is why a number of stable coins have been made which do not fluctuate much. Libra which Facebook is making is an example of a stable coin. But the government will not give up control of the economy so easily. I personally am not in favor of having a completely laissez faire (economy is entirely in the hands of the market). Despite this, governments are releasing their cryptocurrencies, just as Venezuela's Petro and China have released their digital currency. India is also considering launching its own cryptocurrency. However, it remains to be seen whether these official cryptocurrencies can be called cryptocurrency at all.
Cryptocurrency is now like the 90's internet. I believe we can find a better economic system by this. But it will take some time.
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