Bitcoin, for those that aren't familiar, is a form of digital currency, or cryptocurrency to give it its technical definition. Bitcoins can be used to purchase things electronically (from merchants who are of course willing to accept the currency), and in this sense it is similar to other forms of currency. There are however a number of significant differences between bitcoin and other traditional Currencies. So what are the major differences that set Bitcoin apart?
Bitcoin is completely decentralized
One of bitcoins most important and defining characteristics, is the fact that it is completely decentralized. In other words, there is no central bank or Federal Reserve printing bitcoins or influencing or manipulating interest rates at the behest of Governments. This is a major source of the currencies appeal for many of its users. Bitcoin is unaccountable to populations or centralized authorities, and for all intents and purposes, makes its own rules. It is for this reason that bitcoin is widely considered to be the first truly democratic form of money.
Supply and mining
Bitcoins are generated and supplied by computers all around the world ‘mining’ for coins. The mining process can be complicated to understand at first, but it is this process that facilitates the entire bitcoin network. The bitcoin network can only work if someone keeps arecord of all the transactions taking place. This problem is dealt with by collecting all the transactions made over a set period, and placing them into alist (also known as the blockchain). It is the responsibility of the miners to confirm all of these transactions and code them into a ledger. Without this vital process, double spend could occur (the code behind every bitcoin beingused more than once) and the entire network would be undermined, rendering bitcoin worthless! Once a block of transactions has been created, miners will take the information block and apply a complex mathematical formula to it,which effectively turns it into something else (preventing double spend). The miners are then rewarded in bitcoins for this effort, and it is this process that guarantees the integrity of the whole system.
Why Bitcoin has value
There is no simple answer to why bitcoin has value. This question of course gives rise to why anything has anintrinsic value. Bitcoins value essentially derives from its users and the fact that they attach value to the currency. To a large extent the value bitcoin users attach to the cryptocurrency, is the direct result of its decentralized attributes. In this respect bitcoin has equity like characteristics in that, as its network of users and ecosystem grows, so too does its value. As more and more people participate in the bitcoin network the more bitcoin effectively consolidates its position as a payment network, which in itself gives it value.
In addition, bitcoin effectively allows users to completely evade capital controls, allowing users to simplyslip the digital currency into another wallet connected to a bank account insome other country. Tracking down bitcoin transactions is incredibly difficult given the anonymity of the entire process, and this is why governments (notably India and China) have a less than favourable view of the currency. However, it should be stressed, that while bitcoin may be low cost and alleviate users of the strict controls often encountered when wiring money abroad, is certainly not without its risks. As we have witnessed over the last two years, bitcoin has been notoriously unstable in value. Since its inception, its exchange rate against the dollar has seen it jump or crash over 20%. These frequent fluctuations in its value, have led many to conclude that bitcoin is inherently unstable.
Who accepts bitcoin?
Of course one of the central prerequisites required for bitcoin to enter the mainstream, is for it to become a widely accepted form of payment from merchants worldwide. Until then, its credentials as a genuine disruptor to the established monetary system will remain somewhat vacuous. Yet despite strong skepticism that bitcoin would failmiserably in this regard, 2015 proved something of a watershed with a dramatic increase in merchants, including many of the big retailers now accepting the cryptocurrency. You should of course always check with the individual merchants you use frequently, but when you realize that companies like Amazon, eBay and PayPalall accept bitcoin, you soon get an idea of just how versatile the currency is becoming. With bitcoins user network continuing to expand, and most importantly, with people continuing to place value to bitcoin, expect its acceptance rate to go up dramatically!
How secure is bitcoin?
One of the most frequently asked questions that emerges when it comes to Bitcoin,is exactly how safe and secure it is. Understandable, given how different it isto our conventional concept of currency. The first step to anyone looking to get involved with Bitcoin, is to get yourself a ‘wallet’. Think of a wallet as like your very own bank account, except that its free, requires no identification and is anonymous. All you require to open a wallet is an email address. Once you have done all this you will provided with a bitcoin address.This is effectively a code that you will need to send people so that they can transfer bitcoins to you. There are a number of sources out there that can provide you with bitcoin ‘wallets’, blockchain () is certainly one of the most secure and popular sources.
Predicting the future and viability of bitcoin is no easy task. On one hand it is has shown remarkable resilience and durability in the face of much skepticism and pessimism over its ability to be seen (and used) as a viable alternative to current monetary systems. On the other hand, its persistent volatility issues,combined with concerns that the use of bitcoin by criminals (as a result, predominately of its anonymity) raise genuine concerns over the viability of a decentralized monetary system in any form. Above all though, what is clear, is that presently more and more people continue to place value (and therefore faith) in bitcoin asa viable alternative. In addition, bitcoin, and the bitcoin payment network,continues to attract significant investment. This, combined with the technical advancements behind its payment network and infrastructure, are sure to address those security and volatility concerns.