Modern societies rely entirely on big intermediaries, such as banks, to establish trust in their economies. Overall, they have done a good job fulfilling their function. However, there are problems that stem from old business models clashing with new technology. Inherent to the old model is centralization, which is buckling under its own weight.
In 2009, Bitcoin was anonymously released in the wake of one of the largest financial shocks in history. It is a digital cryptocurrency that is not regulated or issued by any government or private entity.
Although it has very little intrinsic value and was originally worth pennies on the dollar, there is major interest in its underlying blockchain technology due to its decentralized and pseudonymous nature.
Bitcoin can be purchased through an online exchange using traditional currency, either whole or in fractions.
A digital wallet is needed in order to safely store the Bitcoin due to the possibility of online exchanges being hacked. Private wallets allow users to store Bitcoin and safely create backups on a smartphone or offline.
Bitcoin was the world’s strongest currency in 2010, 2011, 2012 and 2013, outperforming even gold. In 2014 it was the world’s worst performing currency.
Bitcoin’s purpose is to establish trust and allow transactions across a global ledger, specifically with no need for a third party. Trust is created through peer-to-peer collaboration and cryptography rather than a singular authority figure. Every transaction is shared across millions of computers.
Blocks are calculated and mined every 10 minutes with an updated list of transactions. These are linked together to form a chain of time-stamped blocks that represent the whole history of the blockchain. This is a clever tactic against hackers, who would have to compromise every computer on the blockchain using high levels of cryptography while everyone is watching.
Bitcoin “miners” contribute their computational resources in order to make the system work. In exchange, they receive some Bitcoin. The blocks increase in complexity and halve their size on a scheduled basis. This disinflationary process increases the amount of energy needed to complete future calculations.
Many individuals have pooled their resources together and contribute to a framework that allows new privacy tools such as Bitcoin to be open to criticism, which is needed for innovation. It is this global network of developers continually making adjustments and improvements to Bitcoin’s functionality.
It is important to note the lack of confidentiality when it comes to Bitcoin, even though real identities aren’t attached to any blockchain. It is not entirely anonymous, although attempts to make it more private are currently being developed by an energetic community. Addresses can still be linked to other transactions.
By residing entirely on the public domain, there is no point of authority that a government can bully and coerce into submission using laws like FISA and looming threats of prosecution.
Bitcoin has therefore been unfairly branded through illegal activities such as hacking and portrayed as anti-government, but these labels are missing the most basic point, which is that it enables people to be in full control of their own financial activity.
“While modern networks have made it easier to use aged financial infrastructure, particularly in a digital context, they have not created new infrastructure,” writes Spencer Bogart, the author of a Sept. 22 report from Needham & Company, an investment banking and asset management firm.
“Bitcoin, on the other hand, is new infrastructure for digital value exchange,” Bogart writes.
“The price of Bitcoin benefits from two main sources of demand: its value as a ‘digital gold’ and its utility as a payments channel.”
The investment report also shows that Bitcoin liquidity has steadily grown as its volatility has declined. Its daily price volatility is now comparable to oil and it has even fallen below that of popular Internet IPOs.
Emerging markets from developing countries have been particularly fond of Bitcoin due to a combination of unstable currencies and more financial crises.
Capital controls and excessive costs for cross-border transactions also make Bitcoin more appealing as a fast and low-cost alternative.
Remittance plays a big factor in Bitcoin’s popularity abroad. It is costly and time consuming for immigrants to send money across borders. A borderless currency such as Bitcoin allows distant families to access funds within mere minutes using only a 2% transaction fee instead of the 10-20% banks generally charge.
There are many recurring problems with centralization planning around the world. Working-class votes for Brexit and Trump are a symptom of this. However, it is not simply limited to the United States or Europe.
The past weeks have seen India’s Prime Minister Narendra Modi defend his unexpected demonetization effort that began on Nov. 8, causing tremendous disruptions throughout the Indian economy.
According to Reuters, “nearly half of India’s 202,000 ATMs were shut on Friday,” after the announcement withdrawing 500 and 1,000-rupee notes. Over 80% of the currency in circulation has effectively been banned.
Hundreds of thousands of people waited outside their banks as “anger intensified” across India. Accounts in Mumbai described prices jumping by a factor of ten in return for accepting the old cash notes.
Meanwhile, Finance Minister Arun Jaitley is quoted in Bloomberg as calmly stating that “there are long, but orderly queues” at the banks.
“A big regret is that people are getting inconvenienced,”Jaitley said. It is a vastly different perspective from the countless images of disorder on the streets.
Source: http://www.forbes.com/sites/realspin/2016/12/20/bitcoin-and-the-cashless-future/#3ea953914df6
