This article is inspired by the consistent request of my younger brother, Caleb. You win today. I’m sure wherever you are you must have burst a jig to this bit (see what I did there).
The advent of the global currency has largely divided the global society into three different groups namely; those who are against the Bitcoin, those who are in support of the same and lastly those who have no clue what Bitcoin is. This is largely the reason why I’d like to share a few thoughts on this revolution.
Certain reports indicate that this BITCOIN concept was first birthed and described by one Wei Dan in 1998 who conceptualized crypto currency as an alternative to traditional money (what we commonly use as currency) which is centralized and government backed.
However, there have been major developments to this end and as such, on 3rd January 2009 one Satoshi Nakamoto published the invention. It was released as an open source software (computer software whose source code made available with a license in which the copyright holder provides the right to study change and distribute the software to anyone and for any purpose). It is a peer to peer system this implies the users don’t require an intermediary.
The transactions are verified by network nodes and recorded in a public distributed ledger called the block chain (this can be equated to statements generated from holding a bank account). In other words it can also be referred to as a digital currency.
The ledger uses Bitcoin as its unit of account. It is categorized as a decentralized virtual currency-by the US Treasury.
These ledgers are created as a reward for payment processing which users offer their computing power to verify and record payments into a public ledger. They can also be exchanged for the other currencies,products and services.
That sounds like a mouthful however there is no much difference between Bitcoins and the normal currency as we know it. The Bitcoin works on the premise that people start to accept it as a currency to exchange goods and services. All they need is a software Bitcoin wallet to begin the system. This wallet generates Bitcoin addresses which then transfers them from one person to another. It acts like a bank account or coming closer home like ones M-Pesa Account or Airtel Money.
Bitcoins share similar characteristics with money as however, they also have demerits.
Medium of Exchange
It is currently being used as a medium of exchange in a number of transactions from various online portals. It has gained popularity because it cuts costs relating to currency conversions. The downside to it having the above characteristic is is that it is not regulated therefore while while purchasing it makes it difficult to gauge whether the source selling it is credible or not.
Unit of Account
It is divisible up to eight decimal places and supports mathematical functions. The problem with it is that it is very volatile and as such the seller has to consistently calculate its value frequently as compared to other currencies which are relatively very stable.
Store of Value
They can be stored in a digital wallet therefore can be accessed at ones discretion. The underlying problems that come with this characteristic are that due to its inherent volatile nature, it can never guarantee the value remains the same over a certain period.
Since they are not backed by any government reserve or government authority, there’s a question of credibility as well. Moreover, since it’s a digital currency and no banks hold them then the question of security arises upon the risk of theft. For instance one major trading center Mt Gox only knows this too well for it was robbed of its Bitcoin inventory losing an amount whose value was in the range of USD 560 million. This amount took about 4 months to get compensated.
Other reports have indicated that the Bitcoins have been used to launder money and enhance criminal activities. Statistics indicate that in 2012 alone, 4.5%-9% of all transactions related to the Bitcoin were for drug trading in the deep web drug market.
That notwithstanding, some countries have made certain inroads towards the use of Bitcoins. Vancouver is a classical example of such a place. It boasts of having the first Bitcoin ATM which was installed by Michell Demeter of Bitcoiniacs.
Lastly, even with the underlying risks that come with the use of Bitcoins, certain facts cannot be left unsaid. This financial model has a blanket advantage to all and sundry (including corporates) who plan on sending or receiving money across borders get to enjoy a cost saving in international Forex exchanges. Bitcoins are pegged on a fixed supply of 2 million coins and as such reduce the probability of causing an economic crisis associated with increased money supply that is not supported by proportional growth.
The above is just but a snippet of a phenomenon whose dynamic progress should be keenly researched. In other words Watch This Space!!!
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