An Introduction to the Virtual Currency Bitcoin, Blockchain

The virtual currency Bitcoin has been a hot topic as of late, becoming the focal point of discussion among common men and lawmakers alike. From its modest introduction in 2009, the currency has grown in admiration and infamy, amassing a large number of supporters and opponents. Advocators of Bitcoin say that the innovation it brings to the existing monetary systems is enormous, while critics point to the incredibly volatile price fluctuations and the fall of large Bitcoin exchanges such as Mt. Gox as reasons for why it’s doomed to fail. It is without a doubt that Bitcoin will pave the way to a decentralized monetary future without the need for governments and private banks and will enable to the world to achieve financial consensus amongst strangers at a truly global scale.

Throughout all of this heated debate, a few still remain left out, asking the question, “What is Bitcoin?” Bitcoin is a form of digital currency which operates solely on the internet and functions through a decentralized peer-to-peer network in order to create, process, and record transactions. Without the need of a central body to regulate and govern this currency, Bitcoin has become a powerful force in the financial realm. Bitcoin operates using the Blockchain, which is a form of public ledger that tracks all Bitcoin transactions. This ledger is stored on every Bitcoin user’s computer and updates daily with new transactions in order to prevent fraud. The Blockchain is maintained by Bitcoin miners all around the world, who process Bitcoin transactions and add them to the ledger, verifying that a Bitcoin user isn’t spending currency that they do not have. Bitcoin ‘miners’, as they’re termed, possess computers which hash out complex calculations for which they are rewarded small amounts of Bitcoin. The difficulty of these algorithms is automatically increased in a linear scale which depends on the amount of Bitcoin in the network. This keeps the amount of Bitcoin in circulation at a constant level, which prevents any drops in value due to the effects of inflation due to the unbridled fiscal policies of governments and financial institutions alike. Bitcoin is transferred among peers in a network though public addresses, each of which represents a Bitcoin wallet. Addresses perform functions similar to account numbers in public banking systems. In an extension of this banking analogy, ‘private’ keys serve the purpose of PIN numbers; they serve as unique passwords enabling their owners to access their Bitcoin wallet. Although this system may seem complex – just like the current banking system to the uneducated person – it is in fact very stable and secure.

Bitcoin’s unique property of being a virtual currency without any physical units in circulation presents several distinct benefits. As no central authority holds control over the value of one Bitcoin, its value is truly reflective of a free market. Because Bitcoin exists on the Internet, it easily facilitates trade across the entire world and allows economies from opposite ends of the globe to trade freely without having to deal with complications due to switching currencies or paying fees for bank transfers. As the popularity of Bitcoin rises around the world, merchants have been accepting Bitcoin on an exponential level, even reaching the likes of Overstock.com, which has grossed over $2 million in Bitcoin sales alone (Chavez-Dreyfufss). It is clear that Bitcoin is a large competitor in a world of hundreds of currencies, and is the first that can help develop a truly global market in which no limitations exist to both merchants and customers alike.

Another key advantage of Bitcoin over physical currency is its innate transparency. Because of the existence of the Blockchain, all transactions are kept open and publically accessible to anyone who wishes make an inquiry. Donators can see where their contributions are being spent when giving to charities and auditors can clearly see the transactions made by an individual, business, or government body, depending on whether they wish to disclose their Bitcoin address; If they do not, their transactions remain private and confidential because there is no system in place that ties a Bitcoin address to a name unless an owner voluntarily discloses it. However, this transparency is not just centralized around transactions made in the Bitcoin network. In fact, the entire Bitcoin protocol is open-source, which means that anyone is allowed to view and edit the source code. This ensures that no malicious backdoors or intentional security flaws are existent within the Bitcoin protocol, which makes it secure for everyone to use. As the source code is in the public domain, anyone is free to revise and publish different versions of the Bitcoin protocol, altering it to fit their needs. These alternate versions of Bitcoin are frequently named “alt-coins”, as they are alternate versions of Bitcoin that may offer more features, depending on the will of the author. There are thousands of alternate cryptocurrencies in existence, and the number grows as each one is constantly being improved upon.

A potential counterargument can be made in the fact that Bitcoin is innately volatile due to its relatively young age. For instance, in 2011 I had started mining Bitcoin on my old laptop that I had no use for. Due to its low popularity level back then, it was relatively easy to mine on older hardware because all of the algorithms were relatively easy to process, even for dated hardware. In the span of a week I had accumulated around 15 BTC, which were worth around $7.50 at the time. Unfortunately for me, I decided that this entire process was a waste of time and re-imaged my computer, re-writing over all of the data in my hard drive. If I had kept that amount and sold on November 29, 2013, I could have grossed $18,000 (Farrell). Bitcoin’s current volatile nature is due to its young age. Throughout history, introduction of currencies not backed by precious metals have had very shaky starts, such as Sao Tome’s Dobra and Indonesia’s Rupiah, valued at 17,783 and 8,826 per USD, respectively (Fluer-De-Coin). Bitcoin needs time to mature in order to gain stability and attract investors on a large scale.

It is clear that Bitcoin is already a global currency and will continue to rise in popularity and gain widespread acceptance throughout the world. Bitcoin is here to stay, and it is up to the fiscal powers of the world to embrace it and revel in its benefits or reject it and be left out in the cold, isolated from its boundless potential.

Works Cited

• Chavez-Dreyfuss, Gertrude. “Exclusive: Overstock CEO Says Bitcoin Sales to Add 4 Cents to 2014
• EPS.” Reuters. Thomson Reuters, 13 Aug. 2014. Web. 16 Nov. 2014.
• Farrell, Maureen. “Bitcoin Now Tops $1,200.” MoneyBeat RSS. The Wall Street Journal, 29 Nov. 2013. Web. 16 Nov. 2014.
• “Which Are the Most Devalued Currencies?” Top Most Worthless Currencies. Fluer-De-Coin, n.d. Web. 16 Nov. 2014.

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