Bitcoin – what’s all the hype about?
“Bitcoin” has been on many people’s lips in the past few months or so. Even if you don’t exactly know what it is, you have no doubt seen a rise in people mentioning it or articles about it on your favourite sites. Bitcoin’s newfound prominence may be because of controversial reasons but there are some who speculate that it is going to revolutionize the way the financial industry works.
Bitcoin is a peer-to-peer (or person-to-person) system of digital currency that is independent of any government or bank. In other words, Bitcoin is not governed by the laws or regulations of a third-party. It is the first decentralized digital currency in the world. The virtual coins (Bitcoins) are held in a virtual wallet and can be converted into actual cash via several online exchanges. The Bitcoin system is maintained by an open-source community coordinated by developers.
The coins are generated through a computer program called a Bitcoin miner. It is not only used to generate coins but it also serves as a means with which to validate purchases between Bitcoin users. In order to become a Bitcoin miner, you need an extremely powerful computer. Actually, because of the amount of difficulty a normal, run-of-the-mill PC has with the solving of the complex cryptographic problems that are involved in Bitcoin transactions, you would absolutely have to buy a specialized computer in order to mine Bitcoins at a rate where your income exceeds your electricity costs.
The smallest Bitcoin mining computer on the market computes about 5GH/s (hashes per second) and the largest one up to 500GH/s. Pretty powerful stuff. A Bitcoin mining computer has to run 24/7 which means a lot of electricity usage. Prices for a Bitcoin miner can range from about $300 to $23,000. The smallest miner apparently generates up to 20 dollars worth of Bitcoins a day (which is also dependent on what the exchange rate for Bitcoins are) .
Some of the advantages of the Bitcoin system (as propagated by the Bitcoin community itself) is that the coins are sent through the Internet from person-to-person with no interference from a third party. The system can be utilized anywhere in the world (making it a type of global currency). Your account can never be frozen and there are no prerequisites for you to start using Bitcoin – all because no single company or person owns or controls Bitcoin. It is a public system in which everyone can take part. Lastly, there are very little to no fees involved in using the system.
Only two words need to be mentioned when it comes to controversy surrounding Bitcoin. Silk Road. Some history buffs might think of the East-West trade route that made China such a powerful country today. But the one we’re talking about is much more sinister. Silk Road was a sort of black market “trade route” for criminals. People went to this online marketplace to buy everything from illegal drugs and guns to stolen credit cards. Even weapons of mass destruction were said to be available via Silk Road. The appeal of this marketplace was the fact that one could do business anonymously without one’s online traffic being monitored and thus avoiding the risk of getting arrested.
Silk Road made use of Bitcoin currency to secure the anonymity of their customers. The powerful encryption that Bitcoin provides made it nearly impossible to find the owners of the website as well as the people who buy on the site. However, that anonymity was soon compromised due to the creator of Silk Road making a few critical errors that revealed his identity. Silk Road was shut down by the FBI in October 2013.
As at early December 2013 one Bitcoin has a value of almost 1,000 dollars. This is extraordinary if one takes into account that the currency started out in 2009 having no value at all and in April 2010, its value was below 14 cents. Many analysts consider Bitcoin an interesting proposition but see the current high price as evidence of a bubble, For people who have been using Bitcoin for a while, its sudden popularity is good news. Because the exchange rate for Bitcoins has shot up, this means more money for current users. For those of us only catching on now, it will be more difficult to afford Bitcoins in order to start trading.
What lies ahead for Bitcoin? It is difficult to say. Many people have praised the unknown creator of Bitcoin for his (or their) philosophy on taking us back to the days when we could freely trade with each other without interference from an outside source. Yet, sooner or later Bitcoin will have to abide by the same laws as other types of currencies do and then this philosophy will potentially no longer be relevant.
Bitcoin has created a demand for cryptocurrencies – something that was unheard of a few years ago. Even if Bitcoin is simply a fad that will ultimately go away, it has at least opened doors for all people (with Internet access, of course) to participate in instantaneous, cross-border transactions that are low-cost. This is a positive for everyone around the world.