Bitcoin was the initial cryptocoin money to
Bitcoin was the initial cryptocoin money to be invented. Cryptocurrencies are usually developed for maximum obscurity, for this case, regardless of it being created in 2009, the developer has remained anonymous, and only dubbed as Satoshi Nakamoto. Since Bitcoin was the first digital currency to exist, all other Cryptocurrencies developed since then are referred as alternative coins or Altcoins. Some of the Altcoins include Ethereum, Feathercoin, Peercoin, and Litecoin. Although Bitcoin is a digital currency, it also exists as a physical coin. Transactions with Bitcoin are made in absence of middle agents, which implies that no banks are involved. Though the currency can be used for shopping, booking hotels, and for making other purchases, the main objective behind its use is to get rich through trading it. Ideally, this explains the reason why the value of Bitcoin rose drastically in 2017 making the currency questionable several aspects. In light of these, this paper aims to analyze some of the issues concerning Bitcoin.
Bitcoins are created through mining. Based on its value, people currently compete on mining Bitcoins through using computers. Ideally, the mining process entails the authentication of Bitcoin transactions. To find the involved transactions, the mining process entails running computer software to process the complex mathematical equations involved. All the transactions involved are contained in virtual locked box. For this case, the mining process entails finding the key to open the locked box. Once the computer software finds the key, the box opens, which is an indication that the transactions have been substantiated. Before 2017, the miner would be rewarded with 25 Bitcoins for finding the key to unlock the box. However, as from 2017, the reward for the transactions verification halved to 12.5 Bitcoins and is projected to half in every 4 years. Interestingly, the mining process can be executed by a computer novice since all that is need are specialized computer hardware and software. The software required is free to download. The miner is also required to open an encrypted online bank, which is referred as the Bitcoin wallet where all the Bitcoins earned will be stored (Scholl 49).
There are several ways through which Bitcoins get exchanged. One of the ways is through selling them to others. Notably, after mining, the miner often sells the Bitcoins to willing buyers. Ideally, this is one of the easiest ways of exchanging Bitcoins, and the new owner can sell to other buyers later for a profit. Another way through which the currency is exchanged is through making purchases. In this approach, the owner of the Bitcoin pays for goods and services offered by the seller. Another way of exchanging the currency is through getting paid for work done, and paying work. Outstandingly, since Bitcoin has become a widely recognized currency, one can accept it as a form of payment for work done (Antonopoulos 11).
A blockchain refers to a continuous developing list of records known as blocks that are linked to the secured use of cryptography. Notably, each block usually contains a mathematical algorithm pointer to a previous block link, a transaction data, and a timestamp (Antonopoulos 180). By virtue of its design, a blockchain is integrally resilient to data modification. A blockchain is also characterized as an open distributed record, which has the ability of recording transactions in an efficient, verifiable, and permanent manner. Once the data in each block is recorded, it cannot be modified without altering the data in other blocks. For this reason, a blockchain is secure in design, which makes it a suitable way of processing computerized transactions (Antonopoulos 195). The first blockchain was hypothesized in 2008, and was later used as the primary component of Bitcoin transactions in 2009. The application of blockchain in Bitcoin transactions made it the initial digital currency. A blockchain is linked to the creation of Bitcoins in that it controls the mining process. Moreover, the trading value of a cryptocurrency is dependent on its blockchain, which is the case for Bitcoin (Bashir 37).
The users of Bitcoin enjoy several benefits as compared to when they use fiat currencies. Essentially, many of the advantages of Bitcoin are based on its decentralized structure. One the advantage entails payment freedom. Outstandingly, the use of Bitcoin makes it possible to receive and send money regardless of it amount, place, and time. The rationale behind this is that there are no borders, amount limits, and holidays involved. For this reason, the currency permits its users to possess the full control of their money. The second advantage entails neutral and transparent. Ideally, the information regarding the supply of Bitcoin is freely available on the blockchain for anyone to evaluate and verify. Since the data is based on blockchain, organizations and individuals cannot manipulate or control the protocol of the currency. Outstandingly, this ensures that the currency remains transparent and neutral (Turban et al. 448).
Thirdly, transactions with Bitcoin have a low fee. Currently, payment using Bitcoin are processed either free or through a minimal fee. The user may opt to include a small fee when making transactions to facilitate a quick authorization of transactions by the network. Moreover, the existence of merchant processors to help merchants’ process transactions, deposit funds directly to their accounts, and convert Bitcoins into fiat currencies. Notably, when all these transactions are made in Bitcoins, they are usually provided at lower fees when compared those charged with credit cards or PayPal networks. Another advantage is security and control. The users of Bitcoin possess a full control of their money. Notably, this is because it is entirely difficult for merchants to force unnoticed or unwanted charges as it may happen in other methods of payment. Transactions using Bitcoin can take without using personal information. Ideally, this provides a higher level of protection against identity larceny. Furthermore, it is possible for users to safeguard their money with encryption and backup (Turban et al. 448).
Another advantage is that Bitcoin transactions have minimal merchant risks. Transactions using Bitcoin are irreversible, secure, and do not necessary possess clients’ personal or sensitive information. Outstandingly, this aspect protects traders from losses that may result from fraudulent chargebacks. Through the use of the currency, merchants are in position of expanding new markets where the rate of fraud is unacceptably high or there is unavailability of credit cards. Generally, this results in minimal administrative costs, larger markets, and lower fees. Lastly, Bitcoin support cross-border commerce – the use of Bitcoin support cross-border transactions in that uses the internet. In addition, anyone can be engaged irrespective of the geographical location (Turban et al. 448).
Equally, there are also some disadvantages associated with Bitcoin. One of the disadvantages is that Bitcoin has not yet been widely accepted. Irrespective of its substantial growth, acceptance among the merchants, and high valuation, it is yet to be recognized widely. Remarkably, the acceptance pace maybe slower given factors such as governments regulatory controls on elements such anonymity, which is one of the controlling aspects for money laundering A second disadvantage is that it is associated with everyday challenges. Cards and conventional currencies are easier to use both online and offline and are widely acceptable as compared to Bitcoin. Almost all the online traders who accept the currency sets their valuation based on conventional currencies, which become a major challenge to Bitcoin usage. Lastly, transactions are irreversible. Ideally, this is both an advantage and a disadvantage. It is a disadvantage in that in instances where one buys goods from a seller and the seller fails to deliver, the buyer cannot place a refund claim (Turban et al. 449).
Although Bitcoin is of benefit to trading, regulators in some countries have raised concerns concerning its use. According to Nicoletti, although blockchain technologies provide provenance and trust, they are also associated with fraud issues (128). For this reason, the US regulators “… expressed concerns that Bitcoin-like systems were vulnerable to fraud through user collusion” (Nicoletti 128). On the other hand, regulators across the globe are concerned regarding the Bitcoin anonymity and money laundering. Although currently regulators are not concerned about the possibility of Bitcoin replacing currencies such as the pound, euro or USD, there are concerns that “… leaving Bitcoin unregulated will allow the free flow of illegal funds cross-borders” (King 119). For this reason, there have been attempts to restrict trade and movement of Bitcoin, and even to stop its exchange into USD. Moreover, regulators worldwide have debated concerning the Bitcoin status before the US congress (King 119).
Although not certain, it is expected that the future of Bitcoin will continue to make progress towards becoming an acceptable currency across the globe. Ideally, one prediction that with time Bitcoin will become widely acceptable across the world is the advancement of technology and especially one associated with Internet use. It is worth realizing that the lack of acceptance of cryptocurrency in some place as currencies of exchange is because of computer illiteracy levels. In this case, as the older generations, which are computer illiterate continue getting faced out and the younger generation continue becoming computer literate, there is a possibility that the whole world will one day be digital in all aspects including trading. Moreover, its ease of supporting international trade is an important aspect that will enhance its acceptance worldwide. Another aspect that may determine the longevity of Bitcoin is its validity, which can be ascertained through its blockchain. Notably, a blockchain is integrally resilient to data modification, which implies that Bitcoin is a currency that can be relied on. To the contrast, from a critical perspective, the future of the currency can be affected by governments regulations and control based on restrictions such as money laundering, support of criminal activities, and fraud.
In my perception, I think Bitcoin is a good investment currently. Ideally, is through assuming that it will not be affected by government restrictions. My rationale is based on the assumption that the value of Bitcoin will continue increasing and especially after mining all the Bitcoins.