A Little Bit Of Bitcoin Education
So in late 2017, the financial world was sent into ‘chaos’ when Bitcoin surged again as a trend, which looks set to stay. Almost everybody around the world with some money to spare decided it could be a good idea to jump into the cryptocurrency bandwagon. But how does Bitcoin work exactly?
Bitcoin is a global payment system and an encrypted digital currency. It has been built on top of a technology called blockchain, a virtual space that keeps track of every transaction. The fascinating part about this digital currency is that nobody controls it and anybody can buy it. The current ownership of Bitcoin lies with some speculators and investors. Financial analysts believe that only about a thousand people own 40% of all the bitcoin in the world. It’s a little hard to estimate how many people own bitcoin; when you own it, it’s assigned to your digital bitcoin address, an encryption key. The problem is, said person can have several addresses. It is being predicted that 2 to 4 million people own a least some fraction of a bitcoin, but that number may be as high as 15 million people. It changes every day if not every hour!
The single enduring question of the whole bitcoin story is concerning its volatility. One reason might be because so few people control so much. Any move by one of these bitcoin moguls, or maybe even a group of them, can have a huge impact on the supply and price. There are almost no regulations and no real infrastructure to speak of. It might be under more control now that it’s trading on actual exchanges like the CME, but before that the whole thing could get hacked or go down overnight, losing all records of bitcoin ownership and throw the market into complete chaos. And did we say fraud or manipulation? Yes, that too. This cryptocurrency is brand new and suddenly worth tons of money and you should assume that anything and everything will happen. Is it really worth spending hard earned money on it?
As a cryptocurrency, Bitcoin is considered real because people say it is, and because there’s a finite number of it — there’s a record of each one that’s mined. There is also a digital record of all the transactions in the block chain. So if you compare it to a hundred dollar bill, which has a serial number but can disappear for years and then show up all covered in powdered cocaine, bitcoin is pretty real!
The future? The end of 2017 already showed how crazy it is and while it may have slowed down by a tiny fraction lately, it would be good to note that bitcoin is not the only cryptocurrency built on blockchain technology and it won’t be the last. This new tech is just getting started and will create all sorts of new things. Some examples would include a smart contract, or a self executing contract between two parties which automates transactions. The easiest example would be if someone used Ether, a cryptocurrency that runs on a network called Ethereum, to pay for a package. Their side of the contract would communicate with Fedex’s tracking system and when and, only when the package was delivered, it could trigger payment to the merchant. With the rise and addition of AI and machine learning, it will likely get way more complicated from there.
Ironically, the future will be less about Bitcoin or any individual currency, and more about this decentralized, computerized ledger technology that can potentially have a huge impact on all kinds of financial transaction. This means no middlemen, no gatekeepers and no profit takers; just computerized, traceable, verifiable transactions. This is something that is sometimes actually called the Internet of Agreements.