We are dependent on others to live alive in this world. Give and take is a part of life, of course with best possible bargain. Whenever we do a transaction, we either give or take. In barter system we exchange goods and services on the spot. Sometimes we need something without anything to exchange on the spot at that point of time, also sometimes we want to dispose surplus without any need of exchange on the spot. Such transactions that involve future commitment, we use to write down the terms of the transaction in front of a third party (evidence) who is trusted by both of the parties involved in the transaction. This is done so that at a particular time in later date the transaction will be completed gracefully and if there arises any conflict then the written note (contract) along with the evidence (third party) will clarify to defuse the issue.
So, for any future commitment we need a third-party granter to verify the authenticity and sanctity of a deal. Third party may be anyone that the involved parties trust. like some prominent person, organization, government institutions like judiciary, bank etc.
With the passage of time the complexity of transaction increased so much that rather than going for different types of contract note a standardized note (Bank note) money emerged which is backed (evidenced) by government institutions like Bank.
So, anyone who possess a bank note carries a certificate about a value that can be used for transaction. Further the Bank Note (money) ensures us that the note is authentic. But the risk here is, if someone make exact photocopy of the note then what will happen? There will be a problem of double spending. So there is a problem if someone mints similar notes (fake currency) with mischievous means. This is very dangerous, because if the market is flooded with fake currency, then the economy will collapse.
The responsibility to identify the authenticity of currency lies with the government Institutions to verify it in market as public is not expert to identify a currency for its authenticity.
In digital transaction while transferring money digitally we do not exchange hard currency, Here actually a value is transferred digitally through a third party (generally a bank).
A third party (bank or government institution) has to involve in these transactions as otherwise it will create problems of bookkeeping and keep records that A has sent $10 to B at this time. But the third party always charge a nominal fee for each transaction.
Blockchain technology is envisaged to create a full proof system to create a mechanism for digital transaction without the involvement of third party.
Blockchain technology is a software program which helps to track any digital transaction. The mechanism here is that it runs on open ledger. ‘Open’ means that the people who become a part of its network (group of people using blockchain) can verify that the transactions for example that a transaction of $10 from A to B did in fact take place. Once it is verified that A had paid $10 to B then every people in the network will be updated about this transaction. After that A cannot repeat the same transaction with someone else in the group as it stops double transaction. The catch point here is that there is no external party involved in the verification of these transaction. It is the members inside that community who will validate the transaction and also it is not required to pay any one outside the community for verification and sanctity of the transaction.
It is not necessary that every member who is part of the blockchain network requires to verify each transaction. It is done by ‘miners,’ the members who validate transactions in the network. They do it generally for a financial reward which they generally get in form of cryptocurrency (will explain later on).