The possibilities with bitcoin are almost limitless. Bitcoin is a kind of digital currency that is accepted over the internet and also at many physical locations. Many small and large businesses are now accepting bitcoins. For example, Subway outlets in Allentown, PA are encouraging people to use bitcoins for payment by offering a 10 percent discount on these transactions. This was also followed by Latin House Grill Burger & Taco Bar, which became Miami’s first restaurant to accept bitcoins in 2013. Additionally, WordPress, which provides free and paid blog websites, has been accepting bitcoins since 2012. Although the use of bitcoins is still limited, the potential it offers is enormous. In fact, the problems it promises to solve can be of fundamental nature and have a big impact in currency exchange problems.
What Is Bitcoin?
Bitcoin, as stated before, is a form of digital currency. It is based on the concept of decentralized cryptographic currency. It is a digital system for transactions without using the traditional monetary system. It can be easily transferred from one destination to another in a safe manner. It also doesn’t include either heavy taxation or any kind of transactional cost. In short, it is free from all kinds of legal and financial hurdles. Bitcoin does not require any intermediary body to govern its transactions, and has a completely modern approach toward finance through peer-to-peer networking.
All the transactions are verified by each node present in the network and are recorded in a blockchain. A blockchain is a publicly displayed distributed ledger. The algorithm used for creating, securing and verifying this system is technically implemented in the military. It uses an algorithm like cryptography and access key generation for ensuring proper security. There has been a demand for this kind of system for a long time, but since it is not accessible everywhere, it’s a little difficult to judge it in its early phase. However, it has the potential to become a monetary standard which can be used all over the world. (For more on this, see Will Bitcoin Win the Race to Become an International Currency?)
A History of Bitcoin Evolution
The digital payment concept of bitcoins was actually invented by Satoshi Nakamoto. He released a research paper named, "Bitcoin: A Peer-to-Peer Electronic Cash System" in October 2008. He executed it as open-source code. Then Hal Finley, a programmer, worked on it and received the first coin through a transaction. Based on the code which was released openly, many different cryptographic currencies started to emerge throughout 2011.
However, in 2013, a glitch in the network occurred with respect to bitcoin mining, in which half of the network was adding the blocks of the blockchain in one version (0.7) of the chain, and the other half of the network was adding in a completely different version (0.8) of the chain, meaning a blockchain fork had taken place. All the transactions were shut down at once and the bitcoin software was downgraded to the lower version (0.7). The fix happened to be pretty simple, and except for coins mined during that time, which was about two hours, users didn’t lose any bitcoins.
In this manner, the bitcoin industry has gone through many different challenges and is still fighting to tackle many others, but it’s all a part of its evolution.
Main Benefits of Bitcoin
The major benefits of the bitcoin system include:
- No taxes applicable – No third party is required to interrupt a transaction with bitcoins, so there is no taxation system needed.
- Not possible to seize by outsiders – These coins can’t be seized, so the government is not able to seize a bitcoin account. The user can rely on these coins without any problems, as they will never get frozen. One will have full freedom to use this money in any way they want.
- No tracking – Unless the user wants, no one can track the transaction. If the user publicizes the address of their wallet, only then can the transaction be traceable. Only the user will get all details about the availability of coins in his/her wallet. It’s very easy to generate another wallet address, so this increases the privacy from the outside world.
- No reversal – There are no risks associated with chargebacks. Once these coins are sent to a particular address, it is unfeasible to revert. The new owner alone will have the key to access these coins.
- Can’t be stolen – The ownership address can only be changed by the owner. So, to access bitcoins of a particular user, one would require physical access to the computer of the owner and then send the coins to another account.
- No extra cost for the transaction – This system performs transactions by running a client and keeping the sender and receiver connected. By doing this, it takes on the load of authorizing every single transaction in a network. This results in a reduction in the cost and makes the transaction more economical.
Potential Offered by Bitcoin
Bitcoins are unique because of their non-state/nation-associated nature and decentralized model. Upon analyzing the features of bitcoins, it can be clearly seen that it has a huge potential if it is accepted widely.
One can use bitcoins as currency in any part of the world. It is possible to transfer money from anywhere and the unit will be a standard acceptable everywhere. With the use of this concept, the taxes to be paid for a transaction can also be reduced. This will result in good economic growth. Complex and peer-to-peer transactions will help in providing a secure medium for transferring the coins without incurring too much cost. With this, the coins will be accessible by a digital signature of some particular set of people. This could be used by the board members of a big company to protect their funds from being used without their consent.
The bitcoin system is gaining compatibility with present-day automated systems as well. This will allow reduction of operational costs and help in dealing with the limitations of the credit card system. Thus, bitcoins can be regarded as the currency of the future.
Challenges and Drawbacks Faced by Bitcoin
Every technology faces challenges and has its own set of drawbacks. However, these challenges only help in the evolution of a project to a more perfect system. A major drawback of this currency is that if the wallet file gets corrupted due to a hard disk crash or virus attack, then the bitcoins can be lost, and there is no way to recover them. This is a drawback because if anything like this happens to a bitcoin investor, then he will be bankrupt in just a few seconds and will have no way to recover.
Another problem is that the concept of bitcoins is relatively new, and new things aren’t accepted that easily. However, many online merchants and even some physical places like hotels are now adopting bitcoins for use, so this problem will most likely vanish in a few years. Also, the value of the bitcoins change according to their demand, so it can be kind of unreliable at times. Other than these, there are also many technical faults that can make it unusable and thus, need to be countered so that there aren’t any large-scale negative impacts. (For more on the pro vs. con debate on bitcoin, see Will Bitcoin Survive? 5 Factors From Each Side of the Debate.)
In this ever-evolving world, you can buy anything from medicine to guns in an anonymous manner, with the help of virtual online currency – bitcoins. Speculators have been stressing on it as online gold, and even the world’s principal bankers believe this concept to likely be a strong rival in the near future. So now it’s your turn to judge – will bitcoin be the currency of your future?