Bitcoin is a consensus system that enables a new payment system and completely digital money. It is the original decentralized peer-to-peer payment network which is driven by its users with no central authority, banks or middlemen. From a user point of view, Bitcoin is very much like cash for the Internet.
Bitcoin is the first execution of a concept called “crypto-currency”, which was first explained in 1998 by Wei Dai, signifying the idea of a new form of currency that uses cryptography to control its conception and transactions, rather than a central authority.
Bitcoins can be acquired as payment for goods or services, purchasing Bitcoins at a Bitcoin exchange, exchanging bitcoins with someone near you or by earning bitcoins through competitive “mining”. By now 11 million Bitcoins are in existence and once this figure hits 22 million, “mining” of Bitcoin would cease. The currency is finite in number to keep inflation rates low and because of the cryptography feature; the currency cannot be easily counterfeited.
The first Bitcoin design pattern and proof-of-concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Unlike other technologies, Bitcoin is controlled by nobody. Bitcoin is controlled by users of Bitcoin spread worldwide. While developers are improving the software, they can’t force a modification in the Bitcoin protocol as all users are free to choose the software and version want to use.
In 2009, the Genesis Block was established, the first transaction was carried out, the exchange rate was published and there were two versions of Bitcoin that were launched. The Bitcoin market was established in 2010 and the creation of “MT GOX”, most widely used bitcoin currency exchange market, triggered the launch of version 3 as well as led to a significant rise in the exchange rates of Bitcoin. In 2011 the Tonal Bitcoin units, a representation of the Bitcoin network aimed to provide a use-case for acceptance of Bitcoin, were standardized. Bitcoin by then was in parity with the US Dollar. Android has a fully functioning wallet application for Bitcoin. Bitcoins are lucrative because of:
- Payment freedom
- Very low fees
- Fewer risks for merchants
- Security and control
- Transparent and neutral
| Finite | Durable | Divisible | Portable | Tangible | |
| Bank notes | No | No | Yes & No | Yes | Yes |
| Bitcoin | Yes | Yes & No | Yes | Yes | No |
Amidst all these developments that were going in the world of Bitcoin there were certain mishap that also took place. In 2010, a major vulnerability was encountered wherein Bitcoin transactions were being blocked. In 2011, EFF stopped accepting BTC for legal reasons and the MT GOX was compromised wherein the user table was leaked which had thousands of usernames and corresponding password hashes. In 2012, over 1 Million Accounts were Compromised and $350k Stolen by Hackers in one week. Thus we can see the disadvantages as:
- Degree of acceptance
- Volatility
- Ongoing development
- Supply and demand of Bitcoins is not supervised by any central authority and thus there is low liquidity
- Bitcoin dealings are not easily observable; laundering of money & illegal online transactions become easy.
Thus some concern-areas Bitcoin needs to address are of anonymity versus privacy, is Bitcoin really the future currency, role of Bitcoins in micropayments and many more. But the success of Bitcoins in the time to come mainly depends on the assumptions that Bitcoins will be able to help the general public the same way as cash, ample security features, addressing tax liability issues and presence of a central regulatory authority.
Name: Preyas Vasavada
About the author: Preyas is currently pursuing his MBA in IT Business Management at SCIT, Pune
Dear Preyas Vasavada,
do you not think that creating a system that has no centralized control system and that allows the user to be the controller is prone to threats from within?
Is ti not a fact that human beings are by nature evil and need the control to ensure that they behave good. So we have a social, religious, legal and political system that regulate our life.
when the new technologies that have no regulations are unleashed into the web sphere do you not think that it can lead to a social breakdown of system?
are we then talking of a society that does not require a system, a framework or a structure?
Hi Shaji,
Its a human tendency to find a someone (“someone can be an entity – a noun”) to follow and thats why there is a central structure. May it be religion may it be society, business, law, politics etc. But in bitcoin has kept the element of that someone as the system which is yet again a noun, but more abstract noun. In bitcoin world our trust lies in the system governed by the system not on the system governed by people. As for the system its only black and white but people have various shade of grey.
For the point of regulation of crypto currencies – I buy a tofee of 1 Re using a coin is illegal since its not a regulated transaction and government does not know about it. Why is there such freedom in using cash? Same is the question with bitcoin, only fact is bitcoin is globally applicable rather than cash being locally applicable. My point is systems by default are not meant to control but to grow and due to misuses control mechanics / Rules / law develop around it. Moreover we humans are a breed who would evolve over any breakdown.
Bitcoin cant say it does not require a system as itself is a system / framework / eco system. Only thing is its dimension are bit different. Same reaction would have occurred when people started printing paper notes instead of gold coins.
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Thanking You
Harsh Patel
Bitcoin Foundation
Education committee member
Hi Harsh,
thanks for the reply. I do not know if the problem is as simple as the emergence of paper money. for me the fear is that it is a “system governed by the system”. or it is technology controlled and run by technology. what is the utility of this technology in a country like India where you are marketing it aggressively?
One of the benefit of this mentioned above is that it is risk free. If the Hollywood fictions are to be true when you allow the system to control itself the risk in fact is extremely high. any slightest manipulation of the system can lead to catastrophic outcomes..
the whole idea of technology for the sake of technology is a bit difficult to digest. there is a need for sociotechnical approach to implementation of technology. what is true in one socio-cultural background may not be true in others.
for example , I read recently of a technology that will replace the call center employees. machine now will do all the activities earlier done by human being. such a technology is very suitable to a nation where the population growth is in the negative. but what about a nation like India and China where there is no dearth of employees. when you transfer a technology across cultures there are definitely going to be problems that need to be addressed.
Hi,
I would just like to quote “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” Hash of this string is used as First / genesis block in bitcoin. Bitcoin as a system emerged out of the chaos caused by US banking institution / EU banking crisis. Moreover acceptance lies in the distrust in the current banking system.When ethics are governed by the people for the people there is always as change of greed.
In recent crisis in cyprus private saving were touched in order to waive of public debt. (i.e any one having more than 100000 Euros would find suddenly its reduced by 60% as they kept their trust in banks). This led to considerable amount of general public shifting out to banks.
Yes the very idea is shocking that what would be the impact of it but in long run it would show the appropriate finger to greed. If we talk of india and china roughly 20% of bitcoin users are Chinese. So if we dont use it or dont accept it would not mean that we are safe instead we are left behind and other moved ahead.
Moreover about the protocol Its impenetrable numerous ways and methods have been used to break it but all have been in vain.
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Thanking You
Harsh Patel
Bitcoin Foundation
Education committee member
Indeed very interesting. I am intrigued to learn more on the topic. It will be a great thing if you can take out time and come down to our campus and deliver a talk to all the students on the possibilities this offers to the IT managers.