Bitcoin – The payment of the future?
Innovation
Posted 07 Dec 2017
In just a few years, the digital currency Bitcoin went from something virtually unknown to one of the most hotly-discussed topics worldwide. This is due to the fact that Bitcoin has gone through a huge rise in value. After numerous great fluctuations in value, in March 2017, the worth of Bitcoin historically surpassed the worth of gold. In the months that followed, the cryptocurrency continued to rush from record to record – only recently did Bitcoin cross the incredible $14,000 mark (as of 7th December 2017, the current Bitcoin value can be found here). But how could Bitcoin become so successful in such a short time?
The digital currency has existed since 2009 – its inventor, Satoshi Nakomoto, was inspired by the idea of a free currency that would not be controlled and manipulated by governments. Back then, a bitcoin was worth less than one cent. The term “Bitcoin” is derived from “digital coins,” illustrating the definition of Bitcoin as a currency without a physical presence. Bitcoin is electronically created and stored. With Bitcoin, you can buy goods and services, just like you can with ordinary money. The difference is that the creation of bitcoins is based on mathematics.
Many Bitcoin critics note that bitcoins have no intrinsic value. Unlike gold, Bitcoin does not physically exist, and it does not have its own worth. But this is also true of paper currency. In the earlier days of paper currency, the worth of banknotes was linked to the worth of gold or silver, but today, it is only worth what buyers and sellers make of it. Value is what we attribute to something. Therefore, we determine what Bitcoin is worth and what it will be worth in the future.
Bitcoin differentiates itself from other currencies as it is not only virtual, but is based off a decentralized network of computers that work together to exchange transactions through the internet. Bitcoin does not depend upon governments and central banks and is not controlled by any institution. Instead, a worldwide community of more than 100,000 users stands behind it. The transactions are encrypted and the bitcoins themselves are detected using cryptographic keys so they can only be spent once. Transactions are saved in an open databank, which can be accessed with a digital signature. In addition, Bitcoin was also created so that no uncontrollable outcomes are possible: only a maximum of 21 million bitcoins can exist (currently almost 17 million bitcoins are in circulation). Bitcoin is therefore protected from inflation. Because of this, it is also likely that greater amounts of users will continue to drive up Bitcoin value.
One might wonder, if bitcoins do not physically exist, how are they created in the first place? A blockchain (a chain of transactions) makes up the basis of Bitcoin networks. Blockchains store all transactions and list them chronologically. So-called “miners” are responsible for the creation of bitcoins. Miners are people that work on blockchains with their computers. Bitcoins are not saved on just one server, but are rather shared on millions of miner computers. Miners use their hardware to calculate bitcoins using a mathematical and self-regulatory system; however, with the increasing number of bitcoins, Bitcoin mining using an algorithm is becoming more difficult. As payment, the miners receive bitcoins themselves. The more powerful the miner’s hardware is, the higher the usage of the resulting bitcoins and the greater the payment for the miner. The bitcoin system – the blockchain – depends on the mining of many different computers and cannot exist without it.
Why did Bitcoin become so valuable in such a short amount of time? The simple reason is that more vendors now accept Bitcoin, and today, you can buy much more with Bitcoin than before. Many technologies and trading firms accept Bitcoin just like they would with other currencies or payment methods, and smaller businesses follow this trend. In addition, Bitcoin only charges a small fee for its anonymous transactions, further increasing its popularity. The more popular the currency and the more it is used, the more valuable it becomes through the fixed maximum of 21 million bitcoins.
For years, there were many speculations about the inventor of Bitcoin, who goes under the alias Satoshi Nakamoto. There have been many searches to identify the real person behind Bitcoin – all without success. But last year, an Australian entrepreneur, Craig Wright, claimed to be the inventor of Bitcoin. Wright used the cryptographic key with which part of the very first bitcoins were created as a proof of his identity. Nevertheless, many questions remain open as inconsistencies and gaps in Wright’s claim were found. According to the Economist, it will probably remain impossible to unambiguously determine the identity of Satoshi Nakomoto.
Bitcoin has become increasingly popular as an alternative payment method for many areas – that is the reason why its value has increased so greatly. However, the currency is characterized by significant fluctuations in price. Nobody knows in which way Bitcoin will develop. Therefore, it is unadvisable to consider Bitcoin a safe investment opportunity. In addition, some knowledge of computer security is necessary to safely store bitcoins on a PC. Caution is especially advised due to the fact that the anonymity of the currency on the darknet attracts many criminals. In addition, there have been repeated thefts of hackers on different cryptocurrencies in electronic exchanges which has also caused the bitcoin price to fall. Let’s see how the currency will develop over the next few months. It remains exciting in any case!
– This article was written by Christine Gierlich, Account Manager at HBI
