From the beginning of human civilization the concept of currency has evolved so much. Trade and commerce depended hugely on what both parties had to offer (material goods, services, etc.) for the transactions to happen; “Exchange”- a more appropriate term. Rice was exchanged for cloth and eventually cloth was exchanged for currency. Now fast forward to the 21st century, we not only have actual currencies but virtual and digital ones as well. A wide range of payment options have reduced the existing barriers of buying and selling regardless of the location or region. The power of technology has allowed us to entertain and utilize the latest form of currency called “Cryptocurrency”.
Paying for a cup of chocolate latte in the streets of China using a mobile app (Internet Banking, PayPal, etc.) would have been unrealistic to even imagine about a 100 years ago – now it’s a thing of the present. Such methods of technology not only fasten the transaction but also provides greater levels of security than conventional methods without costing additional fees.
Cryptocurrency is a medium of exchange, created and stored electronically within the network. Each completed transaction gets added into a block of decentralized ledgers called the “Blockchain”. Once a transaction gets added to the Blockchain it becomes permanent and cannot be altered. Cryptocurrencies have no physical form as it only exists in the network. Bitcoin is the most common and widely used form of cryptocurrency among 700+ different Altcoin (alternate Cryptocurrency like Litecoin, Dogecoin, etc) types. With record-high exchange rates, (1 Bitcoin = 2730+ USD on 21 June 2017) Bitcoin now has created a hype that is enough for millions of users to sign up for a Bitcoin Wallet Account. Similar to the concept of WeChat Wallet (in China), Bitcoin is slowly progressing towards the wide acceptance in countries such as Japan. However, it is important to know that not all countries or states allow Bitcoin to be used legally as the supply of Bitcoin is not determined by a central bank. Here is the list of countries that have banned the use of Bitcoin:
Conceptually, Bitcoin is still new and there are so many unknown areas. The very basic requirement of Bitcoin is that the transactions need to be made over the internet and there won’t be any central authority to process each transaction. A single user can have as many identities over the network and those should be anonymous and can only be identified by their virtual identity. User identities are cryptographically hashed (takes an input or message and returns a fixed alphanumeric string; this string is called the hash value). Bitcoin is generated by “Miners” and unlike conventional digging of piles of dirt, the main job of the miners is to validate each and every transaction on the network by confirming them.
The miners usually look into the history of the transactions that is available in the network for anyone to see. They will confirm that the person who is sending Bitcoin had sufficient funds in their account historically and generate a specific hash value. This hash value will consist of the record date for the transaction and the miner’s proof of work. Thus making them entitled to a transaction fee (generated from this particular transaction) which is then stored to a specific database format known as the Blockchain.
Now the obvious question arises, “How do you control the supply of Bitcoin?” Well the first rule of Bitcoin is that there can only be a maximum of 21 Million Bitcoins generated. For the record, this number is yet to be achieved. Current trends suggests that this number may be reached by the year 2140 or earlier. The Bitcoin system supports fractional values down the eighth decimal (0.00000001). This smallest unit of Bitcoin is called a Satoshi, named after the individual or group of developers who referred to themselves as Satoshi Nakamoto, who are behind the concept of Bitcoin protocol. The process of new coin generation happens while rewarding miners for validating transactions. The reward amount decreases over time and eventually will be set to zero once the total number of coins issued (21M) has been reached. Similar to the upper limit in maximum number of coins there is also a limit in daily production of new coins. Enabling this limit on how fast and how many new coins can be generated, the Bitcoin system is effectively controlling the money supply.
So what is the future of Bitcoin? Well, that is an interesting question to say the least. The advantages of using Bitcoin are:
- No third-party seizure
- No taxes
- No tracking
- No transaction costs
- No risk of charge-backs
- No risk of Bitcoins being stolen
On the other hand the disadvantages of using Bitcoin are:
- Bitcoins are not widely accepted
- Wallets can be lost
- Bitcoin valuation fluctuates
- No buyer protection
- Risk of unknown technical flaws
- Built in deflation
- No physical form
- No valuation guarantee
The growing number of users by the minute, more and more communities accepting Bitcoin as a payment method, trading of coins becoming a source of income for some and the entire concept has broadened in the past couple of years. We may see more and more countries end up banning cryptocurrencies and at the same time we may also see far greater use of cryptocurrencies that we haven’t yet thought of.