Digital currency and its Drawbacks.

What are virtual currencies?

A virtual currency is a digital representation of value that can be digitally traded and functions as (a) a medium of exchange, and/ or (b) a unit of account, and/or (c) a store of value, but, unlike fiat currency like the rupee, it is not legal tender and does not have the backing of a government. A cryptocurrency is a subset of virtual currencies, and is decentralised, and protected by cryptography.

What are Distributed Ledger Technologies and Blockchain?

Imagine a small group of school friends maintaining a list of transactions among themselves, but with a twist: Instead of holding this list in one single computer or in the notebook of one of the group members or authorising some outside authority (say, their class teacher) to maintain (and update) the list, all of them decide to maintain a separate copy of the list in their personal computers. Every time they transact, the rest of the members verify the transaction and once it is verified by all, they update their list. Further, to make sure that none of them changes records of the past transactions in their personal list, they decide to place each transaction as a block, and to stack it one after the other in a sequence. This way, no one can tweak the details of any past transactions because the overall sequence will not match with sequences held by others. Lastly, to make sure that no other child from the school gets to know the details, they devise a code (a cypher) for all their communications related to the list.