Cryptocurrency – Bitcoin: What is Bitcoin?
Bitcoin is a cryptocurrency which can be seen as an innovative payment network and a new form of money. It is the 21st-century currency that exists only in cyberspace.
It uses peer-to-peer technology to operate without any central authority or banks. This simply means that managing transactions, as well as the issuing of bitcoins, is carried out collectively by the network. This cryptocurrency, Bitcoin, is open-source; its design is public, nobody really owns or controls it and everyone can partake in it. Through some of its special features, it allows a number exciting functions that could not be permitted by any previous payment method.
Bitcoin is a new currency that was produced in the year 2009 by an undisclosed person who identified himself as “Satoshi Nakamoto”. Transactions are made without any middlemen. This implies, no banks! Bitcoin can be used to make payment for goods and services. But much of the publicity is about getting rich by trading bitcoin. The price of bitcoin increased very rapidly into the thousands in the year 2017.
Bitcoin has attained the mainstream within the last few months as the decentralised digital currency continues to attain ridiculous high levels.
It pushed past the $10,000 mark for the first time last month, which is double its price just a month ago, ten (10) times its price in January and an amazing 100,000 times what it was worth in the year 2010.
Some investors are cautious about it whilst others are trying to take advantage of the trend. Some people are even trying to sell their landed property for Bitcoin.
How Bitcoin Works
It was written by Nakamoto that such a currency uses “cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”.
This kind of stateless, bank-free currency uses a distributed, cryptographically secured “blockchain” to record payment transactions.
The recording of payments into the blockchain is powered by the users, who offer their computer power.
They are rewarded with newly created Bitcoins, and this activity is referred to as mining.
Bitcoins can be used to buy merchandise anonymously. Furthermore, international payments are easy and cheap primarily because bitcoins are not tied to any nation or subject to any form of regulation. Small businesses may prefer bitcoins mainly because there are no credit card charges. Some people just buy bitcoins as an investment, expecting that the bitcoins will appreciate in value within the shortest possible time.
The Future of Cryptocurrencies
Second-generation cryptocurrencies include altcoins with more advanced uses, that harness the computing power of the blockchain.
A typical example is Ethereum – the blockchain can execute “smart contracts”.
These are pieces of computer code that can interact with other coded contracts and perform work – for example moving money around and making decisions.
The DAO platform that was hacked is written into the Ethereum blockchain and can autonomously operate without humans to control the organisation.
To decide what investments the DAO makes, its members vote on which proposed contacts will be included in the blockchain.
This could be the beginning of an autonomous financial future dictated by machines rather than humans.
Why Many Warnings Against Bitcoin?
To some extent, because of fears that investors will lose a packet.
To start with, Bitcoin has no central bank that stands behind it and it is not regulated by any state.
In addition, experts reckon the bubble could burst.
At the beginning of this year, Ethereum, the second biggest cryptocurrency after Bitcoin, saw its value collapse from $317 a coin to $0.1 a coin within a day. It bounced back and it is now trading at $473 a coin, but the lesson to learn is there.
Some people have labelled Bitcoins what traders refer to as a “fool’s asset”. Unlike investing in a house that can be rented out or a company that makes profits, the only way to make money from them is to find a “greater fool” than you who will pay an even higher price than you will.
The Legendary investor Warren Buffett says of Bitcoin: “Stay away from it. It’s a mirage, basically.”
Finance expert Martin Lewis explained: “Bitcoin is a highly speculative investment. Putting money in it is a form of gambling.”
Why People Worried?
Because it is being exploited by criminals as well as hackers.
The fact that transactions are untraceable makes it a dream come true for drug dealers and money laundering, and it is the currency of choice for the cybercriminals.
It is telling that online crooks who launched the massive WannaCry ransomware attack earlier this year, which crippled part of the NHS as well as businesses in 150 countries, requested Bitcoin payments for organisations to regain access to their systems.
The ill-gotten gains can be transferred across borders and withdraw in any currency or spent them on the dark web – a collection of hard to find websites where it is impossible to track the user.
The Treasury this month announced a crackdown on Bitcoin to tackle money laundering and tax evading.
Under the plans, online platforms where Bitcoins are traded will be demanded to vet customers and also report suspicious activity.