Digital currency is the future with Bitcoin, Ethereum, Z-cash, and Stellar lumens at the fore, among many. On Tuesday, the world’s most popular cryptocurrency – Bitcoin soared to a record high of 34,800 dollars in Asia, marking an 800% surge since mid-March 2019.
A huge milestone, Bitcoin is all set to become a mainstream mode of payment by the end of 2021.
Some refer to Bitcoin as the new gold, but there is still a lot we don’t know. Who created it? Who controls it? Is it backed by any government? How does one use it? How do the transactions take place? And what about illegal transactions? We bring to you the answers.
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Bitcoin is a purely online currency created from computer code, and has been in circulation since 2009. The identity of its creator remains a mystery to this day. Unlike traditional currencies, it has no central bank and is not backed by any government.
Instead, Bitcoin’s community of users control and regulate it via the block chain, which a shared public ledger on which the entire bitcoin network relies. It’s a mathematical process designed to provide anonymous & secure transfers.
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To get started, users can install a Bitcoin wallet on their computer or phone which generates an address unique to each transaction. They can use this to buy goods & services, even other currencies. The transactions are validated by members of the bitcoin community by tracing the origin of each bitcoin using a special software.
This technique is known as mining – a process that is intended to ensure that no single bitcoin can be spent in more than one place simultaneously. Members of this network are known as miners. They are pitted against one another as they race to solve increasingly complex ‘’cryptograms’’ on extremely powerful computers.
The fastest to do so are issued with new bitcoins as a reward for their efforts. This is the only way new bitcoins can be created. However, there is a limit to how many new bitcoins can be created – capped at 21 million units.
The advantages of this cryptocurrency are several – the transactions are anonymous, the transfers are instantaneous, and it’s all free of charges.
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To add to that – there is no price cap – and no middlemen.
But that does not mean that there are no disadvantages – Bitcoin transactions are irreversible and it’s an extremely volatile currency subject to wild fluctuations in price.
Security is also an issue with digital wallets stored in computers or phones, vulnerable to theft by hackers. Lastly, the anonymous nature of Bitcoin makes it a popular currency for illegal transactions.
In February 2016, a Los Angeles hospital had to pay 17,000 US dollars in bitcoins to hackers who took control of its computers for more than a week. But the benefits far outweigh the drawbacks, and the popularity of bitcoin is set to grow exponentially in this decade.