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Bitcoins- Is It a Challenge to the Existing System?

Posted in Finance Articles, Total Reads: 1853 , Published on December 10, 2015

From times unmemorable, people have been sharing the relationship of give and take. This seems inevitable. After all, no person on this earth is self-sufficient but the most important question that arises at this point of time is that what is it that we use as our mode of exchange and the answer is ever evolving.

With the passage of time, on these shifting sands of time, it’s not only the humans, the culture or the living style that has changed but something very integral to our day to day life i.e our currency system has drastically evolved. The various forms that have crossed our lives are animal money, commodity money, metallic money, paper money, credit money, plastic money and now we have amidst us the most mystifying form of currency, the currency that has created a hungama all over the world and its none other than 3….2……1…BOOMM..!!! THE BITCOINS..!!!!!!

Bitcoins is an open source software that was created by Satoshi Nakamoto in January 2009 and it officially entered our dictionaries and our markets on July 18, 2010 when Mt.Gox exchange first quoted it at 0.05 USD per bitcoin. Since it’s creation, bitcoins continue to be developed by cryptographers, software programmers and many more to make it more useful, secure and user friendly. However, its status as a currency remains disputed as to whether it’s a crypto currency or a digital currency.

Image: pixabay

It has been widely said that bitcoins are not healthy for our economy and that they pose a major challenge to our existing system. Recently Russia banned the use of bitcoins just because its constitution says that all other currencies except rubble are prohibited. Even China has banned the use of bitcoins citing security reasons but closing our eyes and shutting ourselves from a revolution is not going to change the reality. Instead of shutting it out, what we need to do is introduce some regulations to make it a safe and successful affair. U.S.A, where most of the bitcoin users live is at the head of the pack when it comes to regulation. California is peeping into its books to introduce regulation in the bitcoins. Many regulated websites such as Reddit and Wordpress accept bitcoins. Virgin Galactic, Richard Branson’s space travel company also accepts bitcoins. Even Canada has accepted bitcoins by setting up the first bitcoins ATM in the world and by taxing the bitcoins. This proves that bitcoins did pose a challenge, are posing a challenge and will pose a challenge in the future but till when will we play this hide and seek game. We must gracefully accept it and help it become an universal currency.

Bitcoin is just like cash, so just like cash we can work for it. We can also sell goods or services for it. It’s easier to buy them in an exchange in the local currency. Mining of bitcoins is also one way but it is quite difficult due to the prevailing competition.

An important aspect of the Bitcoin enigma that teases many is that how does bitcoin work but let me tell you, its not that crooked..! In fact till date it’s the most secure system thought by the human brain. Bitcoin consists of a string of numbers or letters called a public key which is the bitcoin receiving address and that maybe shared with anyone. Also there is another string of numbers or letters used to spend the bitcoins. It is known as the private key. It can be compared to be the key that opens up a locked up box to get all the bitcoins out. If you lose your private key, you have lost the bitcoins. If you forget your password, you have lost your bitcoins. Hence one should properly take back up of these private keys and one may also take the help of the online servers that offer to manage these keys for us. The best mantra is- Always stay mindful of what you are doing with your bitcoin!!

Bitcoin is very much different than the earlier modes of currency in some very interesting ways such that no more than 21 million bitcoins will ever be created. Also, one bitcoin can actually be divided upto 0.00000001. Bitcoin transactions are irreversible which makes using them all the more dicey. Bitcoin is regulated purely by free market and is also very volatile which allows it to gain value. But just being different doesn’t make it a challenge to our system.

Also the bitcoin is an invisible currency that allows people to do business with each other. Lets assume that you want me to carry out a sting operation on a political party that claims to have eliminated corruption but honestly has done nothing. I am well equipped to carry out the mission but do not want to be traced to this sensitive operation at all. Even you would want to remain anonymous. What we both want is a secretly shot video to be secretly leaked on youtube.com. How do we do business? Using bitcoins! You offer to pay me for my services via bitcoins and I accept the same. Why bitcoins? They are anonymous and untraceable. They are the perfecr way for people to do business without revealing identities.

To some people the fact that bitcoin successfully transformed into something with value seems like a miracle. However its not a miracle. It was a result of the dedication and faith of its community whose members would not let go off the beautiful vision of a bitcoin future.

The discourse surrounding bitcoin is often characterized by book quacking naysayers crying about things that don’t make sense. Bitcoin is too volatile they lament. “Nobody will ever use anything so volatile.” “Bitcoin will never be widely employed while it is like this.”

This argument is superficial and short sighted. Volatility is not a property that is inherent in bitcoins. It is caused by the way people currently treat bitcoins in the market. It is a function of people’s attitudes and behavior. Bitcoins’s rapid adoption rate almost completely explains its volatility. Something that regularly grows in both popularity and usefulness will necessarily be volatile.

To complain that nobody will use bitcoins because it’s too volatile is like saying – “this oven is heating up so fast that I’ll never be able to cook in it.” It’s like saying: - “this novel is so exciting that no one will read it.” Also some people complain that only 21 million bitcoins will be created. That’s so limited. But this single handedly explains the age old adage of never going wrong in investing in real estate because land is the kinda stuff that just doesn’t grow. I would credit Nakamoto for blending technological and economic brilliance in his invention of bitcoins. The currency, its rapid adoption, its growing value teaches us all the zen lesson i.e less is more.

Instant transactions, no waiting for cheques to clear, no charge backs, no account freezes, no international wire transfer fee, no fees of any kind, no minimum balance, no maximum balance, worldwide access, always open, no waiting for business hours to make transactions, no bank account needed, extremely poor can use it, extremely rich can use it. Wooww…this sounds like the best payment system in the world.

Let’s just think about the metaphor that we use for global information system: - the net, the web and the cloud. Each of these describes a distinct evolutionary phase of that system. And whats next? It’s what bitcoin has brought us- the chain.

The last revolution that the world saw was of the internet and now we are seeing again the same type of obscure technical innovation, difficult to explain at first, then universally understood and relied upon 20 years later. There are strong indicators that this could even be bigger and faster this time. This is just the beginning of the challenge being posed by bitcoins to the existing system. Let’s now just sit back, relax, quit complaining and watch as bitcoin takes over the world. Let’s witness the rise and rise of bitcoin.

This article has been authored by Juhi Agrawal from SIBM Pune

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