Do bitcoin and cryptocurrency spell the end of conventional currency?
If you’ve been paying attention to current events and market trends, you’ve probably already heard about cryptocurrency and bitcoin. What are they and will they impact your life? Let’s find out.
Conventional currencies vs. cryptocurrency
Bitcoin, the world’s first ever decentralized cryptocurrency, was created in 2009 by an unknown person (or persons, who knows?) with the pseudonym Satoshi Nakamoto.
Cryptocurrency, unlike conventional currencies, doesn’t depend on any central reserve system for regulation and validation.
Conventional currencies are based on gold or silver, and the printing of it is controlled by individuals holding positions in a central body—e.g. Reserve Bank of India, Monetary Authority of Singapore, Federal Reserve System (USA), etc. These bodies don’t need to follow the same policies, which can also be altered with time.
The Central Reserve System regulates the printing of conventional money and validates the transactions through a banking system. The amount to be printed is also regulated by them and is unaccounted to the population. As we all know, these central bodies are controlled by the government, and so the government may take undue advantage.
Bitcoin, however, is a decentralized digital form of currency based on definite rules of mathematics. The technology behind it is called blockchain. The protocol defines that the maximum number that can be generated is 21 million, and each bitcoin can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’).
The bitcoin network is secured by individuals called miners. Miners either verify transactions or create new blocks for blockchains (a highly technical task), and are rewarded with newly generated bitcoins.
Anybody who can assemble a decent computer rig and understands the mathematics behind blockchain can become a miner, but if you can’t mine, you can always buy bitcoin from an exchange.
Why is bitcoin so valuable?
When bitcoin first launched, it was basically worthless. When the first exchange started operating in 2010, one bitcoin was valued at US$0.003. To say that things have changed since then would be an understatement; as of this writing, one bitcoin is valued at a whopping US$15000
The exponential (and alarming) growth of bitcoin is due to a high number of individuals treating it as an asset. This growth will continue so long as there is demand for this cryptocurrency. Just last week, the estimated daily transaction volume reached over US$2.5 billion!
Today, blockchain technology is also being used in healthcare, cloud storage, cyber security, supply chain management, and many sectors. New cryptocurrencies, collectively known as AltCoins, are also being launched and traded. Currently, Etherium is second most popular cryptocurrency and is currently valued at US$740.
The future of bitcoin
Since its launch, bitcoin has gained plenty of publicity—good and bad. Several countries have accepted this new form of currency while deciding to contribute to the technology. A Swiss university has started accepting Bitcoin as payment, and so has a coffee shop in Bangalore, India
But several governments have made bitcoin illegal in their territories due to their inability to regulate or control this currency. Bitcoin’s anonymity has also made it the currency of choice for some illegal activities, most famously the worldwide WannaCry ransomware attacks of May 2017.
The principle, technology, and mathematics behind cryptocurrencies ensure that it is not going anywhere. But the real purpose of currency is a transaction, and bitcoin still isn’t widely used. It is still too early to say if bitcoin will succeed or fail. Its future depends on the population—whether they reject it and opt for conventional currencies, or embrace it and use it in their day-to-day life.