What is making big headlines today is the latest trend in the digital currency.
Yes, we are talking about Bitcoin.
The Bitcoin closing price on December 30, 2017 was ~ USD12, 898.
It was big news when Bitcoin price crossed USD1000 on the first day of 2017 trading. So you can imagine the exponential rise of Bitcoin – the virtual currency.
Moreover, if you consider 1 Bitcoin equaled USD 1 during Feb 2011- April 2011, the phenomenal rise is nothing short of mind-boggling.
What is this virtual currency all about?
Bitcoin is a digital currency for this digital era.
It has the potential to entirely transform the way our world operates.
You must keep in mind that money is nothing but a collective illusion that greases the economic wheels of the world. Bitcoin can be a disruptive development transforming anything that you can think of.
Just as PCs made traditional typewriters obsolete or cell phones usurped telephone poles, Bitcoins may replace banks.
Bitcoin or cryptocurrency is a digital cash system making use of cryptographic modalities to authenticate payments and regulate the supply of monetary units.
A vital component of Bitcoin is the blockchain. It is a ledger in which all Bitcoin transactions are securely documented.
All currencies have some approaches to regulate supply and enforce ways to safeguard its security features.
In fiat currencies, the core banks regulate the money supply and strengthen anti-counterfeiting features to the currency. The objective of this measure is raising the bar on the counterfeiter. Yet, it is still not impossible to print fake currency
You need effective law enforcement to tackle counterfeiting.
What is hard currency after all?
To start with we had barter economy. The barter system was used for centuries much before money was even thought of.
In a barter system, people exchanged goods or services to get goods in return. In ancient times this system could work well only for people living in the same locality.
Bartering had its limitations. There was no legitimacy in a transaction, no consumer protection and no warranties involved.
Eventually, societies switched over to using currency or money as a mode of exchange.
It is still the most rational way to exchange value. In fact, hard currency has all the basic attributes that make for “reliable money”. It is durable, portable, and divisible and has intrinsic value.
Of course, gold fulfills all of the above criteria, but it was not practicable as the preferred medium of exchange because it was not easily accessible.
This was the underlying reason for the creation of fiat currency. Presently this system is adopted worldwide.
Origins of Bitcoin
Many of us are aware, that a person by name Satoshi Nakamoto is the originator of the idea Bitcoin.
Interestingly his real identity is still a mystery, though it appears he communicated with people extensively in Bitcoin’s early days.
The success of Bitcoin is truly remarkable considering so many ventures have failed to try to realize their objectives.
Bitcoin to its credit has several notable achievements, the chief among them are:
- The blockchain and the decentralized system that sustains user-to-user transactions.
- It allows for anonymity through a bit imperfect at the moment. In a Bitcoin transaction, the sender and the receiver have a good level of anonymity
- Bitcoin has developed a community of dedicated and passionate users who are willing to give their bit to the open source technology.
Some experts say the use of fiat currency will be passé in a decade’s time.
Will this really be true?
As with any speculation, it is difficult to say.
Many start-up entrepreneurs tend to live in the future. They foresee situations most of us cannot yet perceive. Perhaps Bitcoin will enfold in a similar fashion. Bitcoin and cryptocurrency may make such a solid ground that could create no reason to have fiat currencies any longer.
Fiat currencies have their drawbacks. Its value can drop when you cross the border.
Yes, values of some currencies like the dollar or Euro travel well. But these two also present challenges. Conversions may not be easy in all countries, or you may lose a percentage of switches.
With cryptocurrency, such drawbacks are expected to disappear.
As 2018 gets ready to roll in, we can safely say 2017 was the year of the Bitcoin.
Bitcoin’s astronomical buildup has made many feel they have missed out on something.
It was worth around $15 in December 2012, and today worth nearly $ 13,000.
Despite the hype of Bitcoin, experts are of the opinion that it must overcome 5 challenges in 2018 for further adoption.
- Regulation – Economist say for Bitcoins to mature, it must be brought into a regulated space.
- Security with regard to intermediaries – Bitcoin owners use digital wallets. Are these really safe?
- Scalability – To play a meaningful role the transactions must be a lot faster.
- Volatility – In eCommerce, the currency needs to be reasonably stable. And not the way Bitcoin value is behaving at the moment.
- Eco-friendliness – Bitcoin transactions consume a lot of power. You need to develop new chipsets for substantial energy saving.