Can Bitcoin Transform The World?

Bitcoin is digital money that may be used to make anonymous purchases online. As opposed to traditional currency, Bitcoin has several advantages. As digital gold, it has been hoarded by savvy investors. The top bankers in the world are starting to openly discuss a potential alternative to fiat currency. Where can I have it, how does it function, and is it the wave of the future?

Recently, an unexpected consensus has emerged between US Federal Reserve Chairman Ben Bernanke, the Bank of England, the Winklevoss twins (of Olympic rowing fame and Zuckerberg annoyance), and the US Department of Homeland Security. What's the link? Everyone has now realized that Bitcoin deserves serious consideration.

A digital equivalent of gold, with all the related speculation, stake-claiming, and even "mining," the new peer-to-peer cryptocurrency was until recently considered as wonderful for the digital wild west of the internet but of little utility for actual transactions.

Mining for Bitcoins requires computers to go through very complex mathematical puzzles. The "coin" is not a real coin at all, but rather a digital token that can only exist as a digital file on a computer. The monetary system is completely decentralized, with no central server in charge. Bitcoin transactions are recorded and verified by a network, but the network does not keep track of the purpose of the transaction, just the wallet IDs involved.

The money is now difficult to use due to the technical knowledge necessary to obtain Bitcoins and the difficulty in finding a place to spend them. First, you'll need to create a wallet, maybe on a website like Briansclub, and then pay a third party using fiat cash to move the coins to your wallet.

When using Bitcoin, it is feasible to remain completely anonymous throughout a transaction by using a payment address that is a short string of random characters. That's why websites like the Silk Road and Black Market Reloaded, where people may purchase narcotics online in complete secrecy, adopted it as their preferred method of payment. Despite attempts by governments like Germany, which in August decided that Bitcoin was "private money" in which transactions should be taxed, as usual, this also makes it exceedingly difficult to tax transactions.

Even if the fact that it cannot be counterfeited is a benefit, it lacks several features that make cash so desirable. Every Bitcoin "spent" is verified by the network to be a valid transaction. That being the case, you can't use the same coin more than once. (But you also can't use it unless you have access to the internet.) There is no need to spend a whole Bitcoin; instead, you may spend any of its 100 million divisible parts, known as a satoshi.

Most people have heard of Bitcoin by now, but you'll be hard-pressed to find anybody who accepts it or even has a basic understanding of it who isn't part of the computer industry. Its pseudonymous originator, Satoshi Nakamoto, has not come forward, therefore it is unknown who came up with the idea. Someone who is fluent in cryptography, finance, and computers may not even be Japanese.

In November of 2008, it was originally introduced in a scholarly article that was sent over a cryptography mailing list. It was noticed by members of that group, but it didn't become widely used as a transactional specialized tool until many years later. Bitcoin's first boom and bust occurred in 2011, indicating that it had attracted enough individuals for real money to become involved, but also raising the issue of whether or not it would ever amount to more than a passing fad.

As a result of the Bitcoin mining process, the total supply will cap out at 21 million coins somewhere around 2140. So far, 57% of all Bitcoins have been mined, with another 75% expected to be mined by 2017. In the year 2141, if someone attempted to produce a Bitcoin, every other computer on the network would immediately recognize it as fraudulent since it was not created in accordance with the laws of money.

From a limited basis, more and more businesses are beginning to accept Bitcoin as payment, and a few payment processors, led by Atlanta's Bitpay, are seeing significant profits as a result. However, precise statistics on regular transactions are hard to come by, and it seems that the two most common uses of Bitcoins are for purchasing illegal narcotics on the Silk Road website and for purchasing the currency with the expectation of making a profit on its resale in a few weeks' time.

Given that Bitcoin has no inherent worth, this is very astonishing. The only reason anybody pays any attention to the currency is that others are ready to do so as well. (Don't give it too much thought.) But now, reasonable experts are predicting that Bitcoin might play a role in the economy of the future. From the European Central Bank's assessment in October 2017 that Bitcoin had "characteristics of a Ponzi [pyramid] scheme," this is a dramatic about-face. Chicago Federal Reserve Governor Charles Evans called Bitcoin "a stunning conceptual and technological accomplishment" last month, saying that traditional financial institutions (which might issue their own Bitcoins) and even governments could potentially utilise the cryptocurrency.

It probably doesn't sound very exciting. To a central banker, though, that's the equivalent of shouting "BITCOIIINNNN!" from the highest building in the city. And Bernanke, in a carefully dull letter to the US Senate Committee on Homeland Security, said the US Federal Reserve had "ongoing initiatives" to "identify additional areas of... concern that require heightened attention by the banking organizations we supervise" in regards to virtual currencies (read: Bitcoin).

Bernanke is, in other words, prepared to include Bitcoin under US currency regulation, a crucial step toward legitimacy.

The vast majority of Bitcoin coverage up until this point has focused on the cryptocurrency's incredible price rise from 2011's $1 low to this month's high of over $900. Such a meteoric rise has prompted the usual speculative frenzy of individuals trying to get their hands on some Bitcoins in the hopes of making a profit by selling them later. Others are spending thousands of pounds on specialized computers known as "mining rigs," which are used to confirm Bitcoin transactions by solving complex mathematical puzzles.

However, bubbles may burst, and in 2011 it did, dropping from $33 to $1. Bitcoin's value on MtGox, the largest exchange, dropped by half the day after reaching that $900 high. Then it started to climb once again.

But speculation bubbles may occur everywhere, from the stock market to the market for Beanie Babies. You only need enough arrogant investors who believe the rest of the market is too dim to resist their superior investment advice. Bubbles in the value of Bitcoin reveal approximately as much about the currency's actual use as the tulip frenzy of 17th-century Holland revealed about the art of flower arrangement.

True, there are lessons to be learned from the past. The British were worried sick about their own financial situation while the Dutch were selling tulip bulbs for ten times the yearly wage of a craftsman. The nation's silver money, which had served as its backbone for generations, was quickly becoming unsuitable for its intended use due to supply constraints and the ease with which counterfeiters could duplicate it. There were signs of a more advanced capitalist system emerging, but the currency had not yet caught up.

According to electronic transactions expert David Birch, Great Britain had an issue back then because "we had a problem in aligning the nature of the economy to the nature of the money we used." Birch, who has been discussing digital currency for over two decades, thinks we're on the cusp of another major upheaval, like the one that happened 400 years ago.

This change has been brought about by the advent of Internet transactions since anonymous, fee-free cash is now unavailable. PayPal and credit cards, for example, take a fee from each transaction. Bitcoin seems like a suitable option for anyone who wants to transact in a digital currency without dealing with banks or other intermediaries.

People in 1613 were trying to find an alternative to silver, and according to Birch, "Perhaps we were thinking, "The concept of tulip bulbs as an asset class is very nice, but this central bank silliness will never take on." We were aware that we needed to make some adjustments, but we weren't sure which ones made the most sense." The monetary issue of the time was resolved by the establishment of the Royal Mint by Isaac Newton (the source of "official" silver and gold) and the Bank of England (a central bank) ("official" paper money that could in theory be swapped for official silver or gold).

Okay, so what happens next? Bitcoin's adaptability is unlike anything else in history. Mike Hearn, who helps develop the software behind Bitcoin, recalls a debate from the mid-1990s: "Why do we need the web when we have AOL and CompuServe?" "So now the same questions are being directed at Bitcoin. In contrast to the rigidity of the AOL platform, the web allowed for anybody to participate, create, and build fascinating services like YouTube, Facebook, and Wikipedia. The same, I believe, will be true with Bitcoin."

To a tiny but vociferous minority in the United States, Bitcoin is the closest thing to the 19th-century idea that money should be backed by precious metals rather than government printing machines and promises. Because of this inherent respect for "real money," those who control the computers that execute the necessary mathematical calculations to make Bitcoin operate are referred to as "miners," and the overall amount of Bitcoin is limited.

And it's a useful tool for speculators like Tyler and Cameron Winklevoss, the twins who sued Mark Zuckerberg (saying he stole their concept for Facebook; the case was resolved out of court). Together, they are establishing the "Winklevoss Bitcoin Trust," a vehicle through which traditional investors may speculate on the value of bitcoin.

Bitcoin's remaining barriers to mainstream adoption are solvable. However, until Bitcoin establishes a full-fledged financial system, it cannot be used for all transactions.

Most of the others are built within the system itself. By the early 2200s, all Bitcoin mining will have been completed. New coinage production will have essentially stopped long before that. And it will continue along the economic road outlined by "Nakomoto" in 2009, a path that opposes the prevailing idea in contemporary economics that central bank control is advantageous, for the next hundred years or more. Some people think it indicates Bitcoin will never become mainstream. At a Bitcoin event last week, the Bank of England's top cashier, Chris Salmon, stated, "Economies do better when they have controlled monetary policies." Therefore, "it will never be more than an option" [to state-backed money]. In the eyes of macroeconomists, Bitcoin isn't threatening because it facilitates criminal activity or tax evasion. Because in a world where it is universally accepted, the power of a central bank to steer the economy is, by definition, nullified, this technology inspires fear.

Hearn, a core developer for Bitcoin, doesn't think that's a problem."

Only if a whole economy switched to Bitcoin would its monetary policy make a difference, but that's not happening anytime soon."

Already, Bitcoin-inspired competitors like Litecoin (which streamlines the transaction process) and Freicoin (which discourages hoarding) have emerged. Despite their differences, however, they are built on the same "forked" technology as Bitcoin. Nothing prevents a sovereign government from recognizing its own Bitcoin implementation as legal money, either. If you want to invest in bitcoin, then you should go to briansclub and invest now!

Even if the future money resembles Bitcoin in form, it may only wind up being a distant relative of the original. Birch wonders aloud whether Bitcoin's technology provides a glimpse into the future. "Yes. How about Bitcoin itself? No."