Bitcoin and the future of payments
In a world when everything seems to be going the virtual way, why not currencies? Though only popular recently, virtual or crypto-currencies have been in existence for quite some time. Traditional currency issued by central banks and governments of various countries is now getting stiff competition from digital.
The first widely used decentralized crypto-currency, Bitcoin can be used in transactions without interference of any financial institution. Formally introduced in 2009 by developer/hacker Satoshi Nakamoto (pseudonym), Bitcoin is an open source currency that relies on cryptography alongside proof-of-work scheme in order to create and manage the currency. Bitcoin has been specially designed to prevent problems faced by centralized currencies.
The amount and speed of generation of Bitcoins is algorithmically controlled and only a fixed amount will exist. A person will have a virtual wallet and can have many virtual addresses through which virtual money can be received or sent. No additional tax or fee will be levied on trading of cryptocurrency from wallet to wallet and all this is done instantly. Bitcoin users send payments by broadcasting digitally signed messages that transfer ownership of coins. A decentralized global network of specialized computers verifies and timestamps all transactions using a proof-of-work system. The operators of these systems, known as “miners”, are rewarded with new coins themselves.
Bitcoin is getting an overwhelming response from investors and the business community. According to David Johnston, CEO of Engine, it is already the 75th most valuable currency on Earth. Bitcoin has soared to a valuation of more than USD$1000.
Risks over conventional currencies
• Intractability
This feature of Bitcoin will undoubtedly attract crime. Bitcoin can be widely used for buying and selling illegal items because of significantly less risk of being tracked by the authorities;
• Threat of theft
Bitcoins can’t be recovered if stolen if somebody hacks into your wallet;
• Lower acceptance
There aren’t a lot of places where Bitcoins is accepted as payment yet. However one of the main reasons why Bitcoins are receiving criticism is because of its association with criminal activities. It is being looked down as an effective medium that could be exploited by criminals to conduct illicit transactions online;
Good or bad, Bitcoin has certainly captured the imagination of the media. Just look at the excitement over the first Bitcoin ATM installed at a Starbucks Coffee shop, which made the cover of a recent edition of the New York Times.