“Unlike other technologies such as AI, machine learning, etc., blockchain is a social and human behaviour marvel,” Ajeet Khurana, the CEO of Zebpay, said to highlight how blockchain and Bitcoin should be understood.
MediaNama conducted a boot camp on understanding cryptocurrencies, supported by Zebpay, in New Delhi on August 23. Khurana gave a lowdown on the different aspects of Bitcoin — the token, the network, and the software.
The term ‘bitcoin’ has multiple meanings
Bitcoin has three meanings:
- Token: as the cryptocurrency token
- Network: the physical network, such as the internet. It is the network where people run computers/phones and includes every one of us who runs such a node.
- Software: A program called the Bitcoin that can even be downloaded on a mobile.
Lightning Network for micropayments
Bitcoin costs about ₹7.3 lakh today. However, it is possible to buy a very small fraction of it — one hundred millionth of it. “That means, you can buy a part of Bitcoin for less than 1 rupee,” Khurana said, “though in reality, your transaction fee will be greater than the money you are putting.”
As a result, there is a layer-2 technology, built on top of a blockchain-based cryptocurrency, called Lightning Network that allows you to break a Bitcoin into a 100 million parts. “Just as you have a rupee and a paisa, you have a Bitcoin and a Satoshi,” Kharana said.
1 rupee = 100 paise
1 Bitcoin = 100,000,000 Satoshi
A Satoshi “can be broken further upto 3 decimal places, and eventually more, on the Lightning Network when it has to be used for [micro]payments,” Khurana said.
Mining is a misnomer, Bitcoin (token) is like the Happy Meal gift
“Mining is a very bad term because it means the Bitcoin is gold, that’s why it has to be mined. But, it is basically a software activity that involves solving a complex cryptographic problem.” — Ajeet Khurana
As a result, “we have started giving an extremely high incentive to the token”, just as children covet the free gift with a McDonald’s Happy Meal more than the meal itself, Khurana explained with an analogy. “Because this extraordinary influence has been attributed to that token, we are not looking at the fact that there’s a food industry, there’s a restaurant industry, there’s a specific restaurant called McDonald’s, there’s a whole menu, we are only focusing on that [free gift/token],” Khurana said.
Why is Bitcoin, the software, unhackable?
- Simple, unhackable language: The cryptographic challenges to earn Bitcoin are written in a simple programming language, called the Script, which was developed by the elusive Satoshi Makamoto especially for Bitcoin. “If it was C, Python, etc., we would have all the vulnerabilities. … [Script] is an extremely weak language, and thereby unhackable. … It uses something called stacks which [because of which] there are no two ways of achieving the same thing in that language,” Khurana said.
- No economic incentive for miners to carry out a 51% attack: Zebpay conducted a study along with Prof. Saravanan Vijayakumaran of IIT Bombay, and released a white paper, “The Security of the Bitcoin Protocol”. In that, he wrote, “The Bitcoin protocol does not provide any cryptographic protection against a 51% attacker”, which, as Khurana explained, meant that “if all people who are running the Bitcoin network, if greater than half of them decide to hack it, it can be done, but there is no incentive for miners to do that” as a such a directed hack, would undermine the Bitcoin as a payment system, and reduce the value of Bitcoin token.
- Bitcoin network invulnerable to brute hacking: Khurana explained that even “if you take the 500 most powerful supercomputers in the world today, the ones that operate using optics, not semi-conductors, and that operate at 0 degrees, in super cool environments”, the Bitcoin network could not be hacked.
Application of Bitcoin: Notarisation
Khurana gave the example of the site, Proof of Existence, which uses Bitcoin “at the point of issuance of a digital asset, such as a song or a movie or a degree certificate or a land record or any of those” to explain how Bitcoin can be used to create official, tamper-proof, public records: “I can write the digital representation of this degree certificate on the Bitcoin blockchain. Unlike exchanges and people’s digital wallets, Bitcoin has never been hacked. Now tomorrow, if the university or any other issuer of digital asset to me dies, … If I had written it on the Bitcoin blockchain, the verifying authority can say say, ‘Show me your degree certificate. I can take its digital representation, go back to that date and every transaction on the Blockchain is timestamped.’ I can go to the exact second at which this transaction was made 30 years ago and check if this digital representation was issued and if it this certificate is genuine — even if the issuer says I didn’t issue it, even if the issuer is not to be found, even if you don’t know whether such assets existed at that point of time. So, this is Proof of Existence. This can be done on the Bitcoin network.”
5 things you need to consider about blockchain
Khurana raised five questions around blockchain and cryptocurrency that most affect the regulatory and perceptual landscape:
1. What if blockchain is not allowed to flourish?
2. What if blockchain is okayed, but cryptocurrency is not?
- Blockchain allows decentralisation: Blockchain marks a “paradigm shift” as it allows decentralisation.
- Node: In blockchain, this money is put in by “people who run computers”, and each such computer is called a “node”.
- Phones can also be nodes: This Bitcoin software can be downloaded to your phone, so that your phone becomes a node, “effectively contributing your power there and the ₹3,000 crore that we wanted to account for will come as a sum total of all of this so there is no central banker”.
- Just as banks run an ERP (enterprise resource planning software) software, blockchain runs on a software called Bitcoin.
- Costs are decentralised: In traditional banking, an ICICI bank, an HDFC bank, and the intermediate payment clearance system spend ₹100 crore each every year to run their computers.
“It costs ₹300 crore to get your NEFT payment to me because these banks, all three players are paying 100, 100 crore rupees, Blockchain will cost at least ₹3,000 crore.” — Ajeet Khurana
- No central banker: In traditional systems, setting the interest rates, devaluing currency, etc. are activities done by representatives of people such as the RBI. “Even in a dictatorial setup, there is some sort of group of experts who are authorised to this,” Khurana said, but with cryptocurrencies, all of these elements are pre- and collectively determined as these are algorithmic money.
- Bitcoin is democratic: Khurana said that except Artificial Intelligence, all technologies are democratic . “Everybody has a mobile phone, everybody has internet access, everybody can do cloud, everybody can do e-commerce. Same with blockchain, now everybody can do money. The roles of the RBI, the banks, the tertiary financial institutions, other intermediaries, and the final customer — all of these have been coded into the Bitcoin algorithm, in their own way, it is… it’s an analogy, right?
- Bitcoin is algorithmic money: “Money as we know today is political money” but “Bitcoin has a parallel system, which is called the Bitcoin programme, so whether there are 21 million coins, how many minutes” are determined by the algorithm, Khurana said.
- Advantages of algorithmic money:
- Accessible to all: “All of you can read the algorithm.”
- No central banker, no biases: “No central banker, there won’t be a group of experts using their wisdom positive biases, and/or negative biases, one way or the other, to make these decisions for you.”
- Pre-made decisions that are changed collectively: “These decisions are pre-made and, if sufficiently, required can be changed if everybody agrees. Everybody usually means greater than 50%.”
- No market-driven surprises: “You will not be surprised by inflationary or deflationary pressures or liquidity increasing in the market or decreasing because it is all pre-told. … We know that upto 2140, how many Bitcoins will be released in what number of minutes every day.”
- Advantages of algorithmic money:
- Blockchain is similar to the cloud, both need to be public to be fully realised: Just as you can create a public and private cloud for companies and individuals, as well as hybrid clouds, you can also set up a private blockchain ”which can run without a cryptocurrency or token”. But just as a private cloud “defeats the purpose of cloud computing”, a private “blockchain has the same mechanism”.
3. Why does this whole ecosystem make people wary?
ONE: Everybody can create their own cryptocurrency. “Today, I could say, ‘You know what, this is my currency. This is called Ajeet’s coin. This is worth 1 lakh rupees’.”
but … For the currency to have any value, a certain number of people have to adopt it. Thus, the problem is not that people can print their own notes.
TWO: Tulip mania driven by greed and fear. People start behaving irrationally as they are too afraid to miss the bus. In that scenario, it is easy to dupe people and tell them, as Khurana explained, “You know what? Bitcoin costs like ₹7 lakh, what nonsense are you saying? You will buy it for ₹7 lakh? Instead, you know, I have this coin, let’s call it Shitcoin, right? This costs only ₹7 and this is exactly the same. Same blockchain, everything is the same.”
Power of Bitcoin: “The only thing intrinsically true about Bitcoin which [makes it] a magnet for scam is that it is such a powerful thing that these leeches and parasites around it come and start selling their own versions of it which are obviously nonsensical and people, [for the fear of missing out on a lucrative deal, fall prey to it]”. — Ajeet Khurana
4. What is the value of Bitcoin? Value ≠ Price of cryptocurrency
“Value, mining, value and using that word value to mean price. They are totally unrelated … not totally unrelated, but they are two very separate things. Market price and the value of Bitcoin such as you know how much money does it take to mine the Bitcoin and those kind of things. These are fairly different things, price is a function of market, whether you make a profit or loss is your problem. Value is societal at an economic level and you know affects us,” Khurana said.
5. Blockchain is different from all other technologies
- Blockchain is a social and human behavioural marvel: Unlike fancy technologies such as AI, machine learning, etc., which are technological marvels, “blockchain is a social and human behaviour marvel”.
- Inefficient database: Blockchain has existed since the 1960s as a technology. It is “actually a very inefficient database”.
***Update (September 10 9:28 am): The headline was updated.