Bitcoin’s success has been remarkable. Its most important characteristic, and what makes it different from money (USD or GBP for example), is that it is decentralized. No single institution controls the Bitcoin network. This puts some people at ease – as it means banks and government have no control over their money. Bitcoin is the Rocky Balboa of economics. During the start-up, one Bitcoin was valued around $35; now, it soars anywhere between $5000 to $6000 dollars. This being said, Bitcoin is incredibly volatile. Prices rise and dip considerably month to month, and sometimes day to day. In this week’s article, we will take a look at how bitcoin works, and see what experts predict of its future prosperity. Let’s see if Bitcoin can go the distance.
Bitcoin is a cryptocurrency monitored by a ledger. The ledger is available to be downloaded by anyone, and with it, you can see every account and every transaction ever made. If I want to buy a sofa from you and pay you 0.5 bitcoins, then the coins will go from my e-wallet to your e-wallet and this will be marked onto the ledger. This is available for everyone to see. Simple.
Although all records of transaction are in the public domain, each user remains anonymous. Transactions and accounts (E-wallets) are tracked by a number, and not a name. It would be impossible to trace an account to a person using the ledger alone. Although anyone can check the ledger, they cannot use it to link a transaction to an individual. But this anonymity comes at a price.
As all accounts on the ledger are mathematically coded, the ledger needs constant work to be kept up to date with pending transactions. When you pass money to someone, it creates a key which creates an e-signature from your personal wallet code and the recipients’. This mathematical key is unique and cannot be replicated.
When you make a sale, everyone in the world’s ledger is updated with this new transaction, and everyone can match this transaction against the ledger. This keep Bitcoin secure.
Mathematicians will link pending transactions to past transactions, this way, everyone’s ledger agrees. Coincidentally, this is how Bitcoins are distributed to people. Someone links a transaction onto past transactions and is paid in Bitcoins. This allows for Bitcoin to be self-sufficient, and have no centralized authority, like the federal reserve to the dollar. This process is called data mining. In turn, no one can print money and Bitcoin is distributed by the system for updating the ledger. Bitcoin is safeguard by everyone, for everyone; and any person who owns a Bitcoin is a part of the Bank of Bitcoin.
It sure is interesting to see how it works; and, even though it can be daunting understanding it at first – Bitcoin is a simple concept. The founder stated that once understood, it makes much more sense than centralized currency as it is maths. But how does it compare to hard currencies? And does it have a future in the way the world works?
Goldman Sachs made its position clear, they believe “gold wins out over cryptocurrencies in most of the key characteristics of money.” They compared the two in terms of durability, sustainability, intrinsic value, and unit of account. On the other hand, cryptocurrencies take up significantly less space – but new alternatives are being created every day. There is no competition when it comes to the value of gold, but there is to the bitcoin. Goldman rounds of their statement by pointing out that Bitcoin is dangerously volatile. The Bitcoin-to-U.S. dollar volatility on average was nearly 7 times that of gold this year (2017).
Frustratingly, there is not enough evidence to come to any conclusion as to how Bitcoin will do in the future. But the central question we need to bear in mind isn’t whether or not Bitcoin is a fad or has staying power, its whether Bitcoin has the potential to be the new gold. Whilst commentaries from Goldman’s state it does not, it is worth mentioning that they are in the process of building their own tech to help decrypt and data mine. This indicates that despite their comments, they still have some faith in the “currency of the future.”
Henry James and James O’Leary do not hold any stake in Bitcoin.