Post by nShrestha on Dec 23, 2013 12:10:06 GMT 5.75
Bitcoin is the first cyber currency or digital money which works in decentralized peer to peer (P2P) payment network free from central authority or middleman or clearing house with no single point of failure. Bitcoin is like digital cash, which can be used in virtual world (internet) to pay for service or goods like we use regular cash in physical world and the architecture of bitcoin transaction is just like the transaction takes place in physical world like user can transfer bitcoins to another user using decentralized P2P network without any middleman or clearing house. Each and every transaction of bitcoin are secured with public key encryption and can be traced through such key and bitcoin address. Unlike regular currency bitcoins are not backed by any precious metal like gold, silver rather backed by mathematics but bitcoin can be converted into physical form which called casascius coin made of gold or silver.
History and System of Bitcoin. In history many attempts have been made to create digital money, in record concept of digital money was pioneered in 1998 by Wei Dai by the name of "Crypto-currency" and later in 2009 Satoshi Nakamoto has invented the concept of Bitcoin. Bitcoin's protocol and software is open source, which allows everyone to see the source code of Bitcoin and understand the full architecture of the system.
How bitcoin is created and traded? Bitcoin is generated by a competitive and decentralized special process called "mining", a process that helps to manage bitcoin transaction as well as create bitcoin. In mining process persons are rewarded with the fresh bitcoin for their effort to decode the mathematical algorithm and verify the transaction. In order to mine bitcoin, miner should have bitcoin wallet (we can find app for the bitcoin wallet in Apple, Android, Windows etc. market) that provides place to store bitcoins and a bitcoin client software. Currently there are 12,145,800 bitcoins circulating into the market and the total current market capitalization of bitcoin economy is around USD 7,868,049,240. New bitcoins are generated in predictable and decreasing rate and there is finite number (up to 21 million bitcoins) of bitcoin that can be created and will be in circulation. When more bitcoins are created in the network, mining process will become more tedious and complex and it will take more time (sometime it may take 3 years to earn a fresh bitcoin) to earn a bitcoin.
How does it simplify the payment modality? Bitcoin can be stored in online bitcoin wallet and payment or transaction of bitcoin can be carried out through this online bitcoin wallet. We can use Bitcoin like regular currency in each and every transaction that takes place in our daily life, on the payment transaction bitcoin can be transferred to payee through digital or online wallet with payer's digital signature. Bitcoin payment is very easy to transact, Payer just has to enter recipient's address or obtain such from QR code, payment amount and press enter to make payment through bitcoin wallet. Nowadays bitcoin became a major means of payment for ecommerce and emerged as serious competitor to traditional Money Transfer providers.
For example Coincave used bitcoin to make remittance easier in Latin America, Tesla Motor Inc. and Belgian Telecom have been accepting bitcoin etc.
Is emerging Digital Currency free from manipulation and undue control? Great value of this digital currency is that it can't be manipulated by any central authority or changed by monetary policy. Value of bitcoin is determined by the demand and supply of the bitcoin, when demand of bitcoin increases, value increases and when demand of bitcoin falls, value decreases. What makes Bitcoin more attractive is that they are not controlled by any government or central authority and can't be artificially inflated or deflated and none of the authority can pump more of currency into the market to boost the economy.
A study conducted by group of economist of Bank of America concluded with the possibility that bitcoin could become major means of payment for e-commerce and may emerge as a serious competitor to the traditional Money Transfer providers.
What are the benefits & Risks of Bitcoin?
| Benefits | Risk |
| 1. Risk of inflation is too low. | 1. Stolen or lost bitcoin is unrecoverable. |
| 2. Risk of collapse is low compared to regular currency. | 2. Bitcoin is hard to trade |
| 3. Bitcoin is safe, simple and cheap. | 3. Still new in the market and volatile |
| 4. Bitcoin is very easy to carry. | 4. Can't use in every economic transaction |
Legality of Bitcoin? Since bitcoin is free from central authority and has not been regulated by any authority, cyber experts have raising concern about cyber security and the probability of using bitcoin in Money laundering and other illegal acts. One crucial aspect of bitcoin is, it is not backed by any government or precious metal. Therefore in the event of liquidity crisis, no one is bound to help by any law or government. However many developed countries have adopted this digital currency and many of them issued regulation to adopt this modern currency concept in to the life.
Despite China has ordered its banks and financial institutions not to deal in bitcoin and France has warned its banks about the risk related to bitcoin, use of bitcoin has been thriving each and every day.