Well, well, well word bitcoin is the most spoken word especially in stock marketing since 29 November, 2017 when news hits that Bitcoin surges through $11,000 in less than 24 hours. Many times readers have come across the word cryptocurrency while reading the context of bitcoin. What is cryptocurrency? Let me explain you in plain english so that it may enters your head with ease. Cryptocurrency can be stated as beginning of secure digital transaction. I am not wrong if i say that it is the money of future. It is a digital medium of exchange which involves the process of cryptography to secure its transaction and creation of new coins. It is different from normal currencies like USD whose value is controlled by government whereas cryptocurrencies are fully decentralized and government has no control on it. Let me move straightforward towards the topic of this article and justify why bitcoin would be the future of money or a renaissance in finance. Bitcoin uses block chain as its building block and security of blockchain is its describing feature. Hackers have to solve complex computational problems and have to alter every single block and links in the chain and almost approximately half of the computers involved in mining the block chain. This is nearly impossible. This level of security in the transaction makes bitcoin future of money and renaissance in finance. Though there may be many gimmicks or drawbacks or loop holes in this digital currency but this has provided a new way of life and enhances a new level of security.
Now let us see the key difference between other currencies and bitcoin. If I am taking about USD or euro or other major currencies of the world these are referred as Fiat currency whose value is backed by the government whereas bitcoins are created by the decentralized process called mining. Mining is done by skilled persons called bitcoin miners and special hardware is used for securing the network. One key feature in creation of new bit coins lies in its creation at fixed rate. These rates have been defined by Satoshi Nakamoto, the creator of bitcoin in his paper Bitcoin: A Peer-to-Peer Electronic Cash System published in 2008. As process involved in creating is mining hence it is often compared with gold which shares the same process. Bitcoin uses Blockchain (public ledger of all transaction) to add records of a new transaction and are added in blocks roughly every 10 minutes. Ledger plays a very important role and is needed by every node to confirm the validity of transaction. Bit coin miner which are expertise in mathematics solves complex mathematical problem using appropriate software and succeeds in creating a new block and received certain amount of bitcoin as reward. Roughly speaking after every four years, block reward is halved. In plain English approach is miners uses their hardware to verify valid transaction, put them in blocks, solve the mathematical problem during the process called hashing and getting new blocks added to the blockchain.
Following reason explain why bitcoin beat dollar or any other relevant currency:
- No intermediate between sender and receiver needed: Bitcoin is a decentralised type of currency and hence banks have no control over it. some relief from banking system is achieved.
- Bitcoin is rebuilding free marketers capitalism or democracy in financial system : Bitcoin is trying to free market and invention. This will lead to increased economy.
- Bitcoin appreciation versus dollar inflation: Inflation means when more money is circulated in the market and hence price of money is decreased. but when bitcoin is referred it has a set amount of bitcoins in the circulation (12.5 new bitcoins are added into circulation in every 10 minutes). When more people enter in the market price of bitcoin increases. Statistics says that value of bitcoin has increased 50% in 2016, whereas price has risen to 35% in 2015.
- Bitcoin enhances more security than dollar’s security: Bitcoin has no single point of failure, network is more secure. Bitcoin unlike the fiat money is consumer driven. Bitcoin uses SHA-256 encryption for both its proof-of-work (POW) system and transaction verification security of bitcoin lies in transaction blockchain. Bitcoin wallet can be stored offline and hence eliminating the risk of being bitcoin wallet stolen.
Disadvantages of Bitcoin:
- Bitcoin are not wisely accepted: Bitcoin are only accepted by a few online merchants. So whole world cannot rely on this currency.
- Corruption of wallet: Since wallet can be stored offline, it has chance to be corrupted by virus or hard disk can crash.
- No Physical form: It can not be directly used in stores and needs to be converted in another form.
- Decentralised Nature: This nature is both curve and blessing. As it has no central authority governing it. No one can guarantee its minimum valuation.
Future Scope of Bitcoin:
Bitcoin does not have physical form, hence needs to be converted to another form to use in stores and many other places.This issue needs to be addressed. Further, bitcoin is not widely accepted system as it is a new concept and people has less believe in it till now but as every coin has two sides let us see optimistic point with regard to bitcoin. It is a open system and anyone in the world can access to it. If you look at the banking system around the world, many people do not have access to banking system and hence it will be boon for such people. Another feature which makes it effective and trending is its decentralized nature which makes it more transparent. Considering all the points, it will be not false to say that bitcoin would be future of the money. But still it takes time and trust of people on it will be needed.