What is Bitcoin, and how may it affect you?
The history of money on the internet is a rather fraught one. In a few short years, consumers have gone from a world that saw us spend the majority of our money in stores and in person, to having online subscriptions and contactless payments flying out of our bank accounts on a daily basis.
Behind all of these digital transactions are a large number of security systems from HTTPS sites to authorisation apps and payment services like PayPal to help ensure your money is safe.
However, with the rise of hacking, data interception, smartphone theft and other threats, plus the complications of currency exchange rates and trust when dealing internationally, lots of smart people have been looking to develop a better way. Their plan is the Bitcoin, which was the original online currency, although it is now used as the general term for many online finance systems.
What is a Bitcoin?
For a start, Bitcoin isn’t a currency by most nations’ legal standards. It is defined as a cryptocurrency, existing only in software as data, which can be transferred instantly. As data, a Bitcoin (currently worth around £465), can be transmitted to anyone around the world online. It can be split down to eight decimal places for low-cost sales and, as it isn’t a traditional currency, there are no bank fees or exchange rates to worry about. You don’t need a bank account and anyone can create an online Bitcoin wallet to manage their currency.
The first Bitcoins were “mined” in 2008 using powerful computers to generate coins, effectively creating free money for the founders. However, this becomes harder as more are mined, and there will only ever be 21 million Bitcoins. More likely, you can now buy Bitcoin for hard cash using an app. For those who like the free money idea, alternatives like Ripple and Ethereum mean there is a ready supply of “new” money as others try to create their own currencies, however, the values are a lot lower.
Behind Bitcoin, and any cryptocurrency is a ledger system, called a blockchain. This is a public list of records linking the history of the Bitcoin to previous ledger entries, helping to guarantee ownership and security. As Bitcoin has developed in popularity and awareness, it has become easier to convert it into hard currency at an increasing number of exchanges, and a growing number of stores will accept it for payment.
Pros and cons of Bitcoin
The portability of Bitcoin is one of its key features. With a Bitcoin app like Coinbase, you can manage multiple cryptocurrencies on your phone just like a bank account. This is useful for those who are regular world travellers and don’t want to spend time stuck at currency exchanges. It is also particularly useful for those in countries with wildly fluctuating exchange rates, and with the global markets possibly approaching another meltdown, Bitcoin could become a useful safe haven for businesses and even banks.
The issues for Bitcoin remain the same as any currency. For a start, it is not thief-proof, and some very clever robberies at Bitcoin digital exchanges with insufficient security have taken place, making for major news. Think of it as highway or high seas robbery for chests full of gold; despite the security, thefts still happen and the currency simply vanishes. However, the security is improving and the heists will become harder if not impossible to pull off.
Then there’s the politics. The world banks like being in control and while they are all working on their own future blockchain-based digital currencies, they are applying great political pressure through governments to have Bitcoin-type currencies outlawed or heavily restricted. However, as Uber is changing taxi rides and Airbnb causes havoc in the hotel market, Bitcoins could easily come to change banking. All they need is a key selling point to make enough people adopt it alongside traditional banking. Also, all it will take is one more ruinous global meltdown caused by the world’s big banks, and trust in them could evaporate totally, paving the way for Bitcoins.
What can Bitcoin do for you?
A few brave souls have tried living on Bitcoin and have found it possible in technology-focused cities like San Francisco. However, it is far from an everyday currency for most of us. More realistically, Bitcoin can provide an alternate currency for those that need it, helping create online communities, or making it easier to work with people in different countries.
Still, as with any technology, adoption can massively increase very quickly, creating new markets and business opportunities, and making life easier for people. And with Bitcoin still a young concept, its future could be very bright indeed.
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