Posted in Finance Articles, Total Reads: 1188
, Published on 01 September 2016
A digital currency created and held electronically without any control is what BITCOIN can be defined as. It isn’t like some ordinary day to day currency like rupees or dollars. It has no physical presence and cannot be printed on paper or molded in form of coins. Bitcoins are produced by businesses all around the world using computer software which solves mathematical algorithms. It is called mining where coders compete and solve mathematical puzzles. At present, roughly 25 Bitcoins are awarded to a winner every 10 minutes. Hence, Bitcoin can be considered as the first example of Cryptocurrency.
The term BITCOIN was coined in the year 2009 by an unknown software developer using the alias Satoshi Nakamoto based on some mathematical proofs. The very idea behind the genesis of Bitcoin was to develop a currency which is independent of any authority or regulations, can be transferred electronically in an instant and involves almost negligible transaction fees. It can be used to do online shopping conventionally just like people do using dollars, rupees, etc. Bitcoin can best be understood by describing its characteristics:
Bitcoin supply is highly controlled and can be predicted. It has been roughly forecasted that in the coming 100 years 21 million units of Bitcoin will be sufficient enough for all kinds of trade activities.
As mentioned earlier, Bitcoin is completely durable because of its digital nature and hence, cannot degrade like our national physical currencies. Also, Bitcoin comes with the flexibility of duplication of wallets to combat file corruption.
As Bitcoin is completely a digital currency, it has the option of getting scaled up very easily. Any bitcoin amount can fit in a Flash Drive. Also, they can be transferred from one user account to another throughout the world without any hassle as there is no one to monitor or impose regulations across cross-country transactions.
Another concerning feature for any currency is its divisibility. This was taken care of during Bitcoin creation which enjoys divisibility up to 8 decimal places and can be extended further as per need.
It is difficult to verify the authenticity of Bitcoin visually as it is a completely digital currency. However, if one wants to identify bitcoin in the blockchain, he can do it via software which at present stage will require a fair amount of technical knowledge.
Bitcoins are portable as mentioned before. On the same lines, it has no storage issues. As we move ahead in future, there are chances of bigger blockchains. However, this can be tackled with further hardware advancements and is not an issue.
At present all Bitcoins are equal and the concerned are busy with discussions over the purity of Bitcoins and whether Bitcoin transactions should be policed or not. Things are on hold and it can be predicted that if stolen coins are mixed in, the transactions will be penalized.
DIFFICULT TO FORGE
A very strong and assuring characteristic of Bitcoin is that it cannot be cryptographically counterfeited. The maximum which can happen is an attempt of Double Spend Attack where the receiver believes that he/she has received the coins but actually hasn’t. Since, the network hash rate is very high, probability of such an attempt is negligible.
The above mentioned points are the core features of Bitcoin. However, recently there has been revealing of many new features which many users aren’t aware of. Some of these are:
• Standardized Wallets: As per this feature, one can have the idea of Bitcoin wallets talking to each other which implies they are very much compatible to interact with each other for transactions.
• Attachments on Transactions: This will allow attaching memos, messages or even receipts to give a feel of proof of purchase to the users of Bitcoin.
• Floatable Fees of Transaction: At present, Bitcoin works on the principle of minimum transaction fees. Since, transaction fees are again priced on Bitcoins, the fee has increased with time. This has been taken into consideration and ideas like transaction fees being paid by receiver rather than sender has been proposed.
• Traffic Routing using TOR: The very idea for using Bitcoin is to hide the users who are behind transactions from the government and authorities. Hence, proper planning is being done to implement the idea using the proxy software TOR.
Bitcoin has completed seven years of journey and has been perceived differently by different sections. Though, it has faced many problems in this journey and questioned many a times about its feasibility, it has been evolving and streamlining as per user requirements. In spite of these, Bitcoin has been able to make its space and generate interests among investors gradually with time. Bitcoin, at present is facing the issue of existential crisis. There has been a large difference in the viewpoint of the large Bitcoin community and the core development team. The community has consistently insisted on increasing the block size whereas the developers have their own idea and roadmap on how to scale Bitcoin via soft fork implementation. These developments and clash of ideas has led to the launch of Bitcoin Classic, an alternative to Bitcoin where the block size will be double the size of the present offering. This has led to a difficult question of which way Bitcoin is heading onto. Whether it is being planned to project Bitcoin as a competitor to Mastercard, Paypal, etc. or it should be developed as a settlement layer with every transaction being done on a common second layer. Considering the fact that a protocol development like that of Bitcoin is an uphill task, many of the stakeholders are optimistic over a successful future of Bitcoin. Their very concern is building of appropriate infrastructure which will eventually lead to creation of robust programs being developed in application layer.
To summarize Bitcoin is not completely perfect. There are lots of hurdles in its path before it becomes unanimously acceptable to all and hence, needs to overcome the same. Also, to consider it dead or give hopes on it will be a shortsighted decision. The need of the hour is to build proper infrastructure and applications to so, that Internet can get its first true payment protocol.
This article has been authored by Gaurav Anand from IIM Raipur
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