Cryptocurrencies, such as Bitcoin are imposing a great threat to conventional banking system. Bitcoin is a revolution. The sun of new financial world.
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| [PHOTO: Wallpaper Access] |
Bitcoin the most popular cryptocurrency in the world. This made some people real rich in very short time. Bitcoin is a digital currency but instead of dollars and cents its Bitcoins and satoshis. One bitcoin is worth 100 million satoshis.
But unlike the conventional currencies Bitcoin isn’t controlled by a government. Instead it's open-source software that runs itself - or more precisely is run by lots of people. This what makes Bitcoin revolutionary. And to some people a bit scary.
Countries would peg their currencies to gold stashed in their central bank. But currencies are now just piece of paper, metal or a number and its value is controlled by a government.
We all trust conventional banking systems to move money - especially online. So when person X sends $1000 to person Y the banks make sure that amount is substracted from one account and added to the other. And banks update their ledgers to make sure people aren’t spending money they no longer have. But is there a way to cut out the banks?
Well, this is the original thinking of Bitcoin. The idea was posted online in 2008, describing a peer-to-peer version of online cash that one can send from one party to another without going through a financial institution. The paper writer was Satoshi Nakamoto. But nobody actually tp this day has been able to who this creator was. But surprisingly the Bitcoin white paper was published one month after 2007-08's financial crisis.
2008's financial crisis was an wake up call exposing risky banking practices . People’s faith in financial system was completely demolished.
Bitcoin uses a highly sophisticated encryption to keep guard the system. Instead of bank accounts people trading Bitcoin have two keys. One's private and one is public. They are not actual keys but bits of encryption code that fit together. Now instead of a bank verifying a transaction it's done by a huge network of powerful computers around the world.
Those every computers have identical copies of Bitcoin's ledger. It's a record of every transaction ever made that's constantly being updated . So if there's any kind of fraud the whole world knows about it. This decentralisation is called blockchain.
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Bitcoin transactions are bundled together into blocks and linked together where each block contains a bit of code from previous one, creating a chronology which is supposed to be impossible to mess with. All the participants of Bitcoin network are agreeing that these transactions are being witnessed by groups.
These groups are actual people with powerful computers called miners. Because of the huge amount of Bitcoin transaction miners have established mining big mining firms. The big ones are in China, Russia and even in Iceland due to technology friendly temperature and low maintanance cost. A Cambridge University research says the entire global Bitcoin network uses more electricity than Argentina.
Transactions are actually floating around on the Bitcoin network - like in a waiting room ready to be verified. Miners look for new transactions to bundle them in blocks. But before they can add a block to the chain there's an extra security check that's pretty unconventional. Mining computers have to compete to solve a puzzle of coding. When a miner becomes the first one to solve it, all the transactions inside it are added to the blockchain and that miner is rewarded with some Bitcoin.
Bitcoin is a hedge against inflation. Other currencies suffer when more money is printed, diluting the pool. And weakening its value. It gets around the inflation problem by capping its supply at 21 million Bitcoins. At the moment roughly 17 million Bitcoins are already in circulation but there are a few million missing cause some people have lost their private keys. The system slows the supply down to preserve its value. Bitcoins supply is capped while demand grows. But Bitcoins value against other currencies has far from stable. It's like a crazy cricket match.
World's richest man, Elon Musk is now investing $1.5 billon on Bitcoin. One of the big runs was when Elon Musk's company Paypal announced that it would allow users to buy, hold and sell Bitcoins.
Companies like Microsoft, PayPal and Mastercard accept Bitcoin. Anyone can buys gift cards at Nike or Starbucks with Bitcoin. But its use is still limited. While crypto enthusiasts think Bitcoin's value is going to climb even higher - maybe even to the point where one Bitcoin worth a few hundred dollars - others say it's just a bubble.
Economist Nouriel Roubini says," The only think is a speculative, self-fulfilling kind of rise. And that rise is driven totally by manipulation." Warren Buffett says," Bitcoin has no unique value at all - it's a delusion basically."
There are other issues with Bitcoin as well. If some forgets or loses his/her private key for example, there’s no customer service to call. Again criminals can misuse Bitcoin as the system keeps everybody anonymous. Money laundering is being a headache for authorities to be regulated.
In greater financial arena Bitcoin is still a pretty new concept. A group of people are willing to take big financial risk to chase a potential fortune.
Source : Al Jazeera