The Bitcoin Buzz: Understanding Cryptocurrency and the Emergence of a Digital Economy
There has been a new trend in the last couple of years leading into a market of the digital currency known as cryptocurrency, with the use of Bitcoins. A bitcoin is the initial banking currency of the Internet.
Although it has been in existence for a couple of years now, they are still not as commonly heard of. Even if the word sounds familiar, chances are most people don’t understand the concept.
What is Cryptocurrency?
Cryptocurrency is just lines of computer code that hold monetary value. These “lines of code” are created by high-performance computers and through electricity. It can also be called digital currency.
Whatever it is called, it is a form of public money that is digital- and is created through painstaking mathematical computations and is monitored and controlled by millions of supercomputers called “miners”.
Although there is nothing physical in the concept of cryptocurrency, it is similar to cash or money itself as it is used in buying and selling and has monetary value.
The initial popularity of digital currency came from the fact that no government owns or controls is- the Bitcoin is universal. This is vastly unlike other currencies which are generally different from one country to another, making conversion the only way to obtain currency of any other state.
They are created with a market cap- in which production is decreased over time and each particular coin only increases in value as time passes.
What are Bitcoins?
Simply put, a Bitcoin is the first crypto coin that was invented. It is unclear who exactly created it, as the cryptocurrency market is designed for maximum anonymity.
However, it is known that it appeared first in the public eye in 2009 by a developer by the name of Satoshi Nakamoto. Afterwards, he disappeared and left behind a Bitcoin future.
Although Bitcoins were the first cryptocurrency to exist, other digital currencies that were created afterward were called Alternative Coins, or Altcoins. Some examples of these are Litecoin, Peercoin, Feathercoin, Ethereum, and hundreds of others that are not Bitcoins.
The advantage of Bitcoins is that it can even be stored offline on a hardware, in a place that can be referred to as cold storage. This prevents Bitcoins from being stolen by others. When it is in hot storage or stored on the Internet, there is a high risk for it to be stolen.
However, if a person loses access to hardware containing Bitcoins, the currency is simply lost forever unless retrieved. An estimated $30 billion in Bitcoins have been lost or misplaced by investors and miners- yet still not taking away from their popularity and hype.
Why is Bitcoin Controversial?
Although there is a definite sensation that makes Bitcoins so popular and intriguing, there are also many reasons that they are just as controversial.
Criminal traders in the years 2011-2013 made Bitcoins famous by buying them in batches of millions of dollars in order to move money outside the eyes of law enforcements- skyrocketing the value of Bitcoins as a result.
For a less digital currency savvy person, scams can happen easily where people lose hundreds of thousands of dollars.
In the end, Bitcoins and Altcoins alike are controversial because they take away the power of money from the banking system and the government, meaning that these accounts cannot be examined or frozen by taxmen or banks.
In a way, Bitcoins are seen as “gold nuggets in the wild west”- beyond the control and scope of police, government, and financial institutions.
How do Bitcoin Work?
As they are completely virtual, Bitcoins are self-contained for their value, without the need of another system to move or store them other than basic technology- unlike paper currencies needing banks. In a way, Bitcoins behave like gold coins- they can be used to purchase goods and services or kept hidden away to increase in value over the years.
Bitcoins are stored in personal “wallets” virtually and can be traded from one wallet to another that can be stored on either cold storage offline on a hard drive or in hot storage- one’s smartphone, computer, tablet, or even cloud storage.
Bitcoins are forgery-resistant, making it impossible to make copies of them or even to attempt to manipulate the system through counterfeits.
How are Bitcoins Tracked?
It seems almost as if something so completely online can either be invisible and impossible to track in terms of transactions or completely public and trackable if one is savvy enough to do so.
However, Bitcoins are very well tracked by a data ledger file attached to each one called a blockchain. Each blockchain is unique and specific to a user and his or her wallet.
Each transaction is logged and made available in a public ledger to ensure the authenticity of trading and transactions. In a way, they are always digitally confirmed and completely anonymous at the same time. Though your personal identity cannot be seen, digital addresses are recorded for each trader and user’s benefit.
As mentioned before, Bitcoins are in essence like holding a gold nugget in your hand- they hold the value of physical, precious metals. Although offline, cold storage models are more hacker-resistant and safe.
Other than the threat of hackers in hot storage, the highest risk of loss is in forgetting to back up your wallet with a failsafe copy- as in the past, a Mt.Gox exchange service collapsed because the organization did not have any money invested in security measures or guards.
For this reason, it is important to update a .dat file each time one receives or sends Bitcoins so that it is copied and stored in each transaction.
Is Bitcoin the future of universal currency?
Although current currency systems are working simply because there are established systems of currencies in all parts of the globe- there is always an issue of inflation between the values of different currencies and the complications of having currencies exchanged while traveling.
In the face of the technological advances leading to the future, it is safe to say that there is tentative, yet possibly bright future for the usage of Bitcoins.
As their values increase every day and if more are created in the entire system of cryptocurrency, it can become a simple, universal way to buy and sell, trade, invest in a stock market type of system, and even a way of transacting in day to day life.
Would you invest in Bitcoins? Do you see a future in cryptocurrency in the ever changing, ever developing, ever leaning towards a world of technology and digitization of all parts of life?