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Bitcoin and Cryptocurrency: Myths and realities The Beginning
Sat Feb 25, 2023 4:29 pm
Bitcoin, Blockchain, and Cryptocurrencies are the new phenomena of the 21st century. There is so much hype surrounding these subjects that it is almost impossible to ignore them and how they may affect our day to day lives. However, not all of us may be in the know when it comes to the maze of jargon surrounding Bitcoin. Blockchain, Distributed Ledger Technology, cryptocurrencies, Initial Coin Offerings; what does any of it mean? Are you feeling left behind when the ‘techies’ speak of block transactions, peer-to-peer networks, and crypto-assets? Were you one of those people who thought ‘mining’ simply meant digging the earth for minerals??
Well fear not, for many of us are in the same boat! Most of us are unsure of how to get ourselves some Bitcoins, or even if we really should! Some of us wonder how distributed ledgers even work and how blockchain could possibly be termed the technology of the future.
But this state of affairs is to be expected. With any new technology, there comes a learning curve, a passage of time where people make an effort to understand the new technology, how it works, its applications and most importantly, how it can be used to benefit themselves. However, it is imperative that we do not take too long to catch up with these new developments, lest the rest of the world leaves us behind.
So then, where to begin unraveling the mysteries of Bitcoin, Blockchain, and Cryptocurrencies....? Well, the simple explanation would be, that cryptocurrencies are a type of digital money that uses encryption for security purposes and that Bitcoins are a type of cryptocurrency which runs on a technology called blockchain............ Seems a tad complex? I would agree. So, let’s start with the basics first – cryptocurrencies. Or more appropriately, let's go back a little further to digital currencies, and its forefather - currency.
Simply put, currency is the system of money in general use in a particular country – I don’t believe we can get any simpler than that. Digital currency, then, is a type of currency that is available in digital format, as opposed to the physical banknotes and coins that you and I are familiar with. This digital currency is also known as digital money, electronic money or electronic currency. But for our purposes, digital currency would suffice. Now, digital currency is a blanket term, used to cover all sorts of electronic money, including, cryptocurrencies. Therefore, cryptocurrencies are simply a variety of digital currencies but are considered special, since they utilize encryption techniques to ensure the safety of the currency, thus making them difficult to counterfeit. Sidebar: What is encryption? It is the process of converting information into a code, to prevent unauthorized access. However, not only are cryptocurrencies secure, but most of them are also decentralized, meaning they have no central authority – such as a
Central Bank – to control them. The pros and cons of this feature are endlessly debatable. But that is a different discussion for a different day.
Another feature of cryptocurrencies is that they do not require an intermediary to validate transactions. What kind of intermediaries validate transactions you ask? Why, banks of course. Each time you make a transfer of money to another person using your bank account, the bank is in fact, vouching for you and the availability of funds in your account. But cryptocurrencies require no such mechanism, hence is an alternative form of payment, allowing you to make payments directly to other people, without the presence of an intermediary. Theoretically, this opens up a whole new payment avenue for the average person: a much faster avenue than what is currently available. For example, sending money back to your family, instantly, without incurring heavy commissions would be a possibility.
So, here’s what we have so far: Cryptocurrencies are a type of digital currency that acts as a medium of exchange between people, enabling direct payments between individuals. So far, so good. Now, to move on to the main event – Bitcoins. How do Bitcoins relate to the cryptocurrencies we’ve been talking about so far? Simple – Bitcoins are a type of cryptocurrency, in fact, most would agree that Bitcoins were the first cryptocurrency in the world.
Bitcoin was first introduced to the world in the year 2009 as a brainchild of Satoshi Nakamoto, who to this day remains anonymous. But, if he has a name, then he can’t be anonymous, right? Wrong. Satoshi Nakamoto is a pseudonym – we don’t know if he is in fact, a he, a she, or a they. In reality, it has been theorized quite widely, that Satoshi is a collection of like-minded people who decided that the answer to the 2008 global meltdown was a decentralized digital currency capable of making instantaneous payments. More on this later, but for now, let's return to the identity of Satoshi. While some deem him to be a group of people, others are convinced that Satoshi Nakamoto is a group of 4 companies: Samsung, Toshiba, Nakamichi, and Motorola. A rather farfetched theory suggests that Nakamoto is an anagram of “NATO amok”, suggesting that the North Atlantic Treaty Organization had something to do with the creation of Bitcoin. Theories abound on the true identity of the creator of Bitcoin, some far less believable than others, however, the truth is, we don’t really know who it is, for sure.
As to the reason why Satoshi decided to introduce Bitcoins to the world – many believe that a major contributing factor was the financial crisis of 2008. But what do Bitcoins and a financial crisis have to do with each other? The answer is liable to be a bit long-winded but bear with me as I attempt to explain.
During the olden days, when people didn’t earn so much, their money was kept on their person or in their houses. But with more earnings came more risk. Thus, people wanted assurance for the safety of their money and decided to turn to banks to keep their earnings safe. Banks also
started attracting more customers by offering customers various options on their deposits. But, interestingly enough, when you deposit Rs.1000 with a bank, the bank is in fact, not required to keep the entirety of that Rs. 1000 with them. They are legally allowed to spend a certain percentage of that money, say 90%, and keep just the remaining Rs.100, just in case the customer requires some of their deposit back. Simplistically, if a bank has only this one customer, and he asked to withdraw more than Rs.100 at one time, the bank would not be able to comply. However, banks have thousands of customers, and they rely on the fact that realistically, not all of their customers will want all their deposits at any given time. So, for example, out of total deposits of a Rs.100 million, the bank will only keep Rs.10 million on hand, to settle its liabilities to depositors.
What do they do with the rest of the money? They invest and loan it out to their customers. And this is where our story ties into the financial crisis. Banks in the USA started giving out risky loans to their customers who had poor credit scores. And as one would expect, customers started defaulting on these loans. Having loaned out their deposits to customers who were no longer able to pay back the money, the banks found themselves unable to pay back their depositors and consequently collapsed and filed for bankruptcy. In addition to the risky loans, banks had also made some questionable investments that did not yield the expected payoffs, thus compounding the problem. Attempting to stop the landslide effect of the bankruptcies, the American government tried to bail out some of the sinking financial institutions. Now, here’s the kicker – the banks lost the money that customers had entrusted them with, meaning that the customers would never get their money back. So, the government offering bailout money should be a welcome reprieve. But the money the government was offering was in fact, also the people’s money, collected by way of taxes! A little like rubbing salt into a wound...
The government’s actions, although a boon to failing financial institutions, were not well received by the general public. And because of the interconnectedness of the modern world, the events taking place in the USA were transmitted to the economies of other countries thus bringing the world economy to a standstill. Following the events of the crisis, people started demanding a currency that was not controlled by a central government or a central authority. The reason being that when people entrusted their money to banks, banks lost customer money and the government, as a stopgap, not only offered government money as bailouts but started printing more money, so that there would be more money available to the public, which had the adverse effect of reducing the value of money in circulation. Since the government had no upper limit on the amount of money they could print, there would always be a certain amount of uncertainty as to the value of people’s money.
And here ends our long-winded story of how the financial crisis led to the birth of Bitcoin. People simply wanted a currency that was not controlled by the government and thus subject to its whims: Bitcoin had no central authority to control it. People wanted a non-inflationary
currency: Bitcoin had a limit on the number of coins that could be in circulation and a fixed rate at which new Bitcoins could be produced. People also wanted a system in which their money and trust did not need to be placed in an intermediary, such as a bank, where there was no guarantee that the bank wouldn’t make bad investments and lose all their money: Bitcoin solved this problem by allowing users to directly transact with each other, in a peer-to-peer network.
So, it appeared that Bitcoin was the answer to many prayers at the time. But these problems had more or less been in existence before the financial crisis of 2008. There were also digital currencies in existence prior to the invention of Bitcoin. What then, made Bitcoin special? What made it unique and able to provide a solution to the many problems that were brought to the forefront because of the crisis of 2008? The magic of Bitcoin, was in fact, its solution to the double-spending problem. And now at this point, I believe it would be prudent to make yet another detour, to understand the concept of double-spending.
Precious metals and paper-based currencies have been used throughout history, for the purpose of conducting transactions. When these transactions are conducted, the person in possession of the currency must typically relinquish it in order to receive the goods or services being sold. Because the exchange of money is physical, there is no danger of the same currency being spent twice by the same party, for the simple reason that they no longer have possession of it. Conversely, with digital currencies, there is no actual physical money to relinquish when making a payment, thus giving rise to the problem of double-spending, which is when a person spends the same currency for two or more transactions. Before the advent of Bitcoin, this posed a major dilemma for digital currencies because each unit could be spent an infinite amount of times, thus giving each unit no real value.
In 2008, with the white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”, Satoshi Nakamoto provided a unique solution to this problem – blockchain technology. In this paper, Satoshi went on to explain how financial transactions still depended on a trusted third party for validation in order to prevent double-spending and how that was no longer necessary with blockchain technology. The detailed workings of blockchain technology is a different article altogether, but suffice it to say that blockchain technology is basically a universal public ledger that records every single transaction to ever take place in the Bitcoin network. Each transaction is validated by ‘miners’ on the network before they are added to the blockchain, ensuring, among other things, that the currency has not been spent already. Miners on the network are rewarded for validations by awarding them with a small amount of Bitcoin. Thus, banks are not required and every transaction is verified to ensure that double spending does not take place.
So, here’s what we know so far: the creator of Bitcoin was Satoshi Nakamoto who created the cryptocurrency as an alternative payment method, after the financial crisis of 2008. It was
created using blockchain technology and solves the problem of double-spending. Now, it appears we have a basis on which to understand the workings of Bitcoin.
Where do you keep your cash? In your wallet, I’d wager. Likewise, Bitcoins, the digital currency, is also kept in wallets. These are digital wallets that can be installed either on computers or mobile phones. Installing such a wallet will automatically create a Bitcoin address. This address can be given to people, much like a bank account number, so that they may make payments to you. These payments, or indeed any transactions utilizing Bitcoin are recorded in blocks in the blockchain, the shared public ledger, on which the Bitcoin network runs. The integrity and the order of the blocks within the blockchain are enforced using cryptography.
When a transaction occurs using Bitcoin, values are transferred between the Bitcoin wallets of the sender and receiver. Each time a transaction goes out of a wallet, the wallet uses an undisclosed piece of data called a private key to sign the outgoing transaction. This provides incontrovertible proof that the transaction originated from that particular wallet. This signature also prevents alterations of the transaction once it has gone out, thereby upholding the integrity of the transaction. All Bitcoin transactions are transmitted to the entire network and in a best-case scenario, can be confirmed within 10-20 minutes by the network’s miners. Mining is a process through which pending transactions in the network are confirmed using a distributed consensus system and then incorporated into the blockchain. This is just a complicated way of saying that a certain majority of miners on the network must agree that this transaction is genuine in order for it to be confirmed.
Transactions awaiting confirmation are placed in what is termed a ‘block’. These blocks are created according to very strict cryptographic rules that are verified by the network and help prevent previous blocks from being modified. Due to these rules, modification of a single block on the blockchain would lead to subsequent blocks on the chain being invalidated, making it simple to pinpoint unauthorized manipulations of the blockchain. Additionally, since a majority consensus is needed to validate a block, this prevents rogue individuals from simply inserting any kind of transaction into the blockchain.
So, as we can see, the mechanism through which the Bitcoin network conducts its business appears to be well thought out and secure. In fact, many people around the world thought so too, and as a result, the Bitcoin phenomenon has taken the world by storm. It was so successful, that an entire ecosystem has sprung up around it, from other cryptocurrencies following in Bitcoin’s footsteps to currency exchanges especially set up to trade in cryptocurrencies. Newer cryptos such as Ethereum and Ripple have become so popular that they have begun to chip away at the huge market share that Bitcoin enjoyed in the earlier days. A major reason for this market erosion is that Bitcoin simply had not anticipated this massive adoption of the currency and therefore did not plan for transactions on such a mass scale.
Today, the Bitcoin network has become a sluggish behemoth that consumes more electricity in a year than the entire country of Switzerland and takes hours upon hours to verify a simple transaction. This could hardly be called a conducive environment for instantaneous peer-to- peer transactions. Therefore, when Bitcoin began to fall behind on its primary objective of rapid peer-to-peer payments, cryptos such as Ethereum and Ripple began to raise their heads. According to the CoinMarketCap website, a prominent cryptocurrency statistics aggregator, as of July 2019, the number of cryptocurrencies in the world amount to more than 2300 and their total market cap stands in excess of $266 Bn. Not too shabby for a concept launched just over a decade ago.
As a concept, Bitcoins are a wonderful idea, introduced to the world by an inspired inventor and adopted by the disillusioned masses. However, practically speaking, the Bitcoin boat, has a few gaping holes. This is not to say that the world has not benefitted from this endeavor – the ecosystem surrounding Bitcoin has proved itself beyond measure – especially with regards to blockchain technology. It is simply that even with the best of ideas, there is always room for some improvement!
Bitcoin and Cryptocurrency: Myths and realities Part 2: The Journey
This is a story of secret beginnings. A story of a brilliant idea, born of trying times. A tale of ups and downs, theft and despair, and triumphant comebacks. The story of an underdog, attempting to overcome the odds. No, this is not a fairy tale, but a real-live story of a...... currency. Yes, you read right – currency. This is the story of the beginning of Bitcoin and its journey through the years. And the best part? The story isn’t quite finished... yet.
Now I’m sure many of you will know bits and pieces of this story that I’m about to begin: who is the founder of Bitcoin – Satoshi Nakamoto; why did he start this new currency – because of the 2008 financial crisis; how did he manage to fix the problem of double-spending that had been plaguing the digital currencies of the time – by using blockchain. But this is a mere summary of what is, quite truthfully, a saga. And as the saying goes, the devil is in the details... So, let’s dive in!
Legend has it, that Satoshi Nakamoto first began working on the concept of Bitcoin in 2007, but the concept was only documented and presented to the public through his Bitcoin whitepaper in October of 2008. What was so special about this little old paper? Well, for one, it described the Bitcoin currency, but far more importantly it detailed the use of a new technology called blockchain so that the Bitcoin currency could never be copied, thus solving the problem of double-spending. About a week after the white paper was published the Bitcoin Project was registered on SourceForge.net – a website that was focused on the development and distribution of open-source software. A couple of months later, on January 3 of 2009, the Genesis Block was mined.
Got a few questions after reading that last sentence? I’m sure you do. So, let’s get some answers. First off, what is mining? Well, if you read on, there’s a whole section dedicated to mining, so we’ll get to that in a while. For now, simply think of mining as a highly competitive, magical process that results in a miner (a user on the Internet) finding a Bitcoin – much like miners in the old ages finding gold nuggets! Secondly, what is a Genesis Block? That, I believe we should find out right now. The Genesis Block or Block 0 of the Bitcoin blockchain is the granddaddy of every other bitcoin block out there. How is this possible? Well, each new block that is created in the blockchain is connected to the one that came before it hence they all trace back to Block 0. Generally, the difficulty of mining blocks is so great that it requires a specialized graphics card but Satoshi Nakamoto was able to mine Block 0 by simply using a CPU since, at the time, the difficulty was set to 1 – much like the first levels of a computer game would start at a difficulty level of ‘Easy’. Compare that with a difficulty level of
10,183,488,432,889 - which is the difficulty level of mining a block on the Bitcoin blockchain as at the time of writing this article – and you will perhaps begin to get an inkling of how the Bitcoin blockchain has expanded in the past decade or so.
Unlike in any of the blocks that came after, Satoshi Nakamoto decided to leave a little message in the code of Block 0. It read “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. This was a reference to an article that appeared in the London Times on the day that the Genesis Block was created, and it provided details on yet another bailout of banks by the British government. Although the message was brief and didn’t give any more details as to why this article was important, many have interpreted this as a message from Satoshi, expressing his distaste for the banks and the middlemen and pointing to yet another reason why he created a more people-driven currency.
A lesser-known, yet interesting fact about the Genesis Block is that throughout the years, people have been treating it as a sort of wishing well. How so? Well, the original Genesis Block contained 50 Bitcoins in total and these have never been spendable – they have always stayed put. But since the beginning of the system people have been sending bitcoins to this address (yes this ‘address’ business will be explained later!) as a sort of tribute to the creator, in the process quite possibly making all of those coins un-spendable! The Genesis Block is, for many Bitcoin aficionados, synonymous with Satoshi Nakamoto, so in a way, sending Bitcoins to this address is a way for them to be closer to their Crypto God, the Creator of the Bitcoin Universe.
After establishing the Genesis Block, Version 0.1 of Bitcoin was released on January 9, 2009, and interestingly enough, in the release note of the software, Satoshi talked about the fact that the total circulation of Bitcoins would be 21 Million, meaning that there would only ever be 21 million coins in the Bitcoin ecosystem. Now, no one really knows why Satoshi decided on this exact figure, although as is common with everything related to Bitcoin, there are many theories floating around, and in this case, many of those theories tend to be highly technical.
To put things into perspective, let us say that the overall supply of Bitcoin can be divided into three parts. One is circulating supply, meaning the number of coins that are out in circulation, either being traded or held by users on the network. Certain cryptocurrencies have all their coins pre-mined, or release all the coins from the beginning of the project, or even mine the coins over time. Irrespective of which method is used, the circulating supply means whatever is available and circulating at present. Second is the total supply – referring to the number of coins in existence at the moment. This would include all created coins, whether in circulation or not. And thirdly, there is the maximum supply for a coin – meaning that if a number exists for maximum supply, then that particular coin will not be created again once it
reaches this number. According to CoinMarketCap, an aggregator website on cryptocurrency information, at the time of writing this article, the total circulating supply of Bitcoin stood at 17,907,850 – roughly 18 million coins. With a maximum supply of 21,000,000 coins, this means that we have a further 3 million coins to mine.
And this perhaps is the best place to delve into the question of mining. Now I do plan to get a little technical here, so those of you who don’t want to clutter your brain with the details should skip right on ahead. For the rest of you brave souls, let us start with the basics. Simply put, mining is a way for you to earn cryptocurrency without having to buy it using money. Interestingly, when Bitcoin first started, mining one block would earn a miner 50 BTC (Bitcoin). In 2012, it was halved to 25 BTC, in 2016 again halved to 12.5 BTC and is expected to go down to 6.25 BTC in 2020. This halving process occurs once in every 210,000 blocks or roughly every 4 years. Right, back to the topic at hand - what do miners actually DO, when they mine? They are in essence being paid to work as auditors of the system. They are verifying past Bitcoin transactions to ensure that double spending has not occurred.
Imagine that you had a Rs.100/- note and a copy of that same note. If you were to go out and spend both those bills, someone taking the trouble to look at both bills carefully would know that the serial numbers on the notes are the same and hence would know that one of them is a fake. What miners do is somewhat similar to this. Currently, when a miner has verified 1MB (megabyte) worth of transactions to ensure there is no double-spending, then they are eligible for the reward of 12.5 BTC. Eligible – yes but not certain to receive it. Why? Well, in order to receive the reward, the miner has to meet two conditions. One is that he has to verify 1MB worth of transactions. But secondly, he has to be the first miner to get the right answer to a numeric problem. For those of you interested in the Bitcoin jargon, this process is known as ‘proof of work’. The good news here is that there is really no advanced mathematics involved in this process – it's just a lot of guesswork. What the miner is actually trying to do is come up with a 64-digit hexadecimal number called a ‘hash’, that is less than or equal to a given target hash.
Think of it this way. I have 4 friends to whom I say that I’m thinking of a number between 1 and 100 and they’re required to guess what it is. My number is 25. A and B guess numbers above 25 and therefore are immediately out of the running. C guesses 24 and D guesses 20. They’d both be right because 24<25 and 20<25. No extra points for C just because he guessed closer! C and D are both eligible for the reward. This happens quite often in the Bitcoin network where multiple miners guess right and the decision for the reward is then based on which miner has verified the most transactions. So, transpose this problem of guessing the number to the Bitcoin network – now the number that the miners are guessing is not between 1 and 100 but a
64-digit number and instead of just 4 people guessing, there are now millions. There are pages and pages of more details for anyone interested in the subject of mining but since too much of a good thing is never advisable, I believe it is in our best interests to gently leave this topic here.
Now, considering the trying circumstances under which Bitcoin was created and the substantial amount of thought and effort put in to launching this currency, you would think that the first transaction of Bitcoin - when the currency was actually used to buy something in the real world - would be a momentous occasion, and the product being bought would be of considerable importance. You would be wrong! The first real-world transaction of Bitcoin was for 10,000 BTC in 2010 and it took place in Jacksonville, Florida when a programmer by the name of Laszlo Hanyecz used it to buy...... pizza. At the time, the exchange rate for BTC to USD put the pizza around $25, but at the height of its price of $19,783.06 per 1 BTC in 2017, this particular pizza was worth $197,830,600. Imagine that!
Bitcoin was not, however, always used to buy such innocuous things as fast food. As the value of Bitcoin increased over the next few years and more people started to join the network, the people who conducted dubious business on the fringes of society also began to take notice of this currency. One of the first of these was Ross Ulbricht, otherwise known as Dread Pirate Roberts, a drug trafficker - among other things – who founded Silk Road in 2011, a marketplace on the dark web. He worked on the simple ethos that people should be free to buy and sell whatever they want – regardless of minor complications such as legality. It is said that an estimated $1 billion worth of Bitcoin transactions took place on Silk Road before the FBI seized all the owner’s assets and shut down the website in 2013. And in doing so, the FBI allegedly became one of the wealthiest Bitcoin owners in the world! And this is simply one example of how Bitcoins are being used for criminal transactions.
Features of Bitcoin
Much like any new invention on the planet, there are both good and bad uses of Bitcoin. But what allows this currency to be so versatile, so fluid? More to the point, how is it possible for criminals to use this currency for their transactions so easily, rather than, say, using dollars or euros. The answer may lie in the inherent features of Bitcoin.
There are a few major characteristics of Bitcoin that make people sit up and take notice. The first is that, as per its design, Bitcoin is decentralized. Satoshi Nakamoto built the Bitcoin network to be independent of any governing authorities, and it does exactly that by maintaining all of its transactions on a distributed ledger network - the Bitcoin blockchain - all over the world. There is no Central Bank to control the system, and no government to shut it
down. If all the nodes of the blockchain in a certain country were to be shut down, the rest of the nodes around the world would continue to keep the network running, thus making sure that the system doesn’t operate on the whims of the all-powerful.
Because of its decentralized nature, and the encryption methods used for recording transactions, Bitcoins are said to be more secure than fiat currency kept in a bank account. How so, you ask? Well, money in a bank account is on potentially precarious ground – theoretically, banks can be susceptible to theft, hacks, financial crisis or asset seizures by the government. Comparatively, Bitcoin is less susceptible to all of these dangers.
In today’s business landscape, banks and financial institutions would take pride in knowing all there is to know about their clients – their names, addresses, phone numbers, credit history, spending habits and more. But as privacy becomes a rare commodity in the present day and age, there emerges ever more frequently, the customers who are unhappy with this state of affairs. Bitcoin was tailor-made for these people. The Bitcoin wallet - the address at which a person’s Bitcoins are kept - does not need to be linked to any sort of personal information, allowing the users to remain anonymous. The addresses are simply a bunch of complicated strings made out of numbers that are accessed using the owner’s private encryption key. And so, you can simply send or receive Bitcoins without revealing your identity. While this is useful for people who simply don’t want their finances to be tracked by banks, it has also become god’s gift to criminals, allowing them to engage in criminal activities without anyone being the wiser.
However, this anonymity only extends up to a certain level. Every single transaction ever performed on the Bitcoin network is recorded on the blockchain. Although it may not show personal information, it is theoretically possible to see every transaction that has occurred using a single Bitcoin address and to also see how much money is in a particular wallet at a given time. But, as intended, it is almost impossible to tell who a Bitcoin wallet belongs to. So, although anonymity has been achieved, transparency has also been built-in.
As we can see, Bitcoin is a bit of a contradiction: it appears to be anonymous, yet its transactions are transparent for the world to see; the network’s transactions are decentralized and stored in multiple locations around the world yet all of those transactions remain completely secure. Now at this point, if you were to be asked whether Bitcoin was a bad bet or the next best thing since sliced bread, I imagine it would be a little difficult to answer. We simply don’t know enough - yet. But perhaps it would be helpful to list down some of the pros and cons of this cryptocurrency.... Let’s begin:
Pro: Satoshi Nakamoto built Bitcoin with freedom in mind. Freedom from governing authorities, imposed fees and forced methods of transaction. I believe it is safe to say that Bitcoin has achieved this objective of freeing the people. Perhaps it has been a little too successful in this attempt since some dark web marketplaces will only accept Bitcoins as payment in order to keep the authorities unaware as to the questionable nature of their business transactions. Is this the kind of freedom that Satoshi had in mind when creating Bitcoin? Perhaps not.
Con: Legality has often been an issue that has plagued Bitcoin since its inception. The precise lack of a central authority which gives Bitcoin its freedom, also creates this issue of legality, since there really is no authority in the world to claim it as its own thereby legitimizing its existence and its rights as a currency. So, because of this fact, different countries around the world have been taking wildly differing stances on Bitcoin throughout the years. Some countries allow and encourage the use of Bitcoin while some have banned it and its entire community. The fact that Bitcoin appears to have a special appeal to the criminal classes is also a point that favors the factions who believe Bitcoin should be disallowed and outlawed.
Pro: Owning a Bitcoin wallet means absolutely no one can steal your money from your wallet without you knowing it, which promises safety for your funds. As a user, you can also take steps to protect your money with backup copies and encryption algorithms. This means that you, the user, is in control.
Con: However, being secure in the knowledge that the 1,000 BTC in your wallet today will also be there tomorrow, will mean nothing if you can’t ensure the value of those 1,000 coins. And this decision is not up to the user - it depends on so many minute variables. Now, this may be true of other currencies as well – most currencies do display some form of ups and downs, but the sheer breadth of volatility displayed by Bitcoin during the past few years has made even the most risk-taking investors take a step back and think twice about their decisions. The price of Bitcoin has had a rollercoaster ride, going to all new heights simply to plummet almost to the ground straight afterward and such volatility is simply not a desirable trait in a currency looking to make its mark on the global economy.
Pro: Fiat currencies have always enjoyed portability but Bitcoin has taken it to a new level entirely. Since it is a digital format of money, users can place as many Bitcoins as they would like on a flash drive and simply carry it around wherever they go or even store it online.
Con: No matter how portable your money is, it’s rarely useful if the money is not recognized wherever you’re going. And this is Bitcoin’s next biggest problem. A huge majority of the
businesses in the world are still completely ignorant of the existence of Bitcoin and hence has no concept of exchanging their goods or services for a cryptocurrency.
Pro: As we’ve seen earlier, double spending is not an issue for Bitcoin, so counterfeiting the currency is a non-issue. Therefore, users can rest assured that they are not being fooled into accepting money that has already been spent elsewhere.
Con: Although your money is secure, it is only spendable so long as you have the key to your wallet. The keys, which are basically unique alphanumeric passwords to the Bitcoin wallets are essential for the smooth operations of the wallet. Lose that and you’ve basically lost your wallet.
So, here we are, complete with a history lesson of how Bitcoin came to be and how it’s been doing so far. We’ve talked about the good, the bad, and the ugly. So then, back to my question: is Bitcoin a bad bet or the next best thing since sliced bread? If you still don’t know the answer to that question, well, you’re not alone. It’s been more than a decade since Bitcoin was introduced to the world and we still can’t seem to agree – is it good or is it bad; is it black or is it white. But, like most things in life, Bitcoin falls somewhere in the grey. It is what you make of it. What we can be sure of is that Bitcoin is a currency of the people, by the people, and for the people. We must simply understand how to use it, wisely.
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