Bitcoin has seen it all. From being an internet and investment sector sensation to a controversial buzzword. The cryptocurrency has gone through its share of ups and downs in the past few years. We might have heard about the term, but do we really understand it? Some of the basic questions related to bitcoins such as:
- What is a cryptocurrency
- What is bitcoin and its brief history
- What is a blockchain
- Why bitcoin is important
We will try to answer these questions without getting too much into the technical jargons. Let us take account of the points mentioned above.
What is a cryptocurrency?
In the consistently expanding digital world, the importance of cryptocurrencies could not be ignored? A cryptocurrency is a digital form of money wherein the coders take account of the encryption techniques for ensuring generation of units (of the currency) and the verification of fund transfer is facilitated without the authority of a central bank. In a free (digital) world, the cryptocurrencies have proven to be an integral method for the promotion of e-commerce and digital payments. Even though this method has been criticized by many for promoting money laundering and illegal transactions.
What is bitcoin and its brief history?
In continuation with the definition of cryptocurrencies, bitcoin is a premium example of a cryptocurrency which works on a peer-to-peer basis thereby eliminating the need for a central bank. It is a type of cryptocurrency wherein the record of transactions is maintained, and additional units of currency are generated by computational solution of quantitative problems.
The objective for introduction of bitcoin was to ensure that financial sector would be given more power by eliminating the external control of the government and central banks and hence there is a controversy in regard to the validity of the currency (even though it is widely acceptable on digital platforms). There are a few central banks which have openly cautioned the users to avoid using bitcoin as a measure of value and means of exchange.
Bitcoin is not an anonymous way of transfer of funds. It ensures that the value could be transferred from one person to the other and an overall control over the funds could be exercised. Bitcoins provide a higher degree of security as compared to the digital transactions backed by the central bank. The concept of blockchains is comparatively faster and more reliable.
What is a blockchain?
The vision of the founder of the bitcoin was simply the elimination of a centralized agency such as the Federal Reserve which could monitor and verify the transactions. This implies that the bitcoin must be maintained by taking account of a public ledger known as the blockchain. This system records the transactions made by the users across different computer systems which are linked in a peer-to-peer basis. These transactions are irreversible in nature. This implies that once the transaction has been recorded in the blockchain, it could not be deleted.
The distributed ledger in this case works across the network wherein each peer holds an entire copy of the ledger. The system is transparent and very quick compared to the existing digital payment processing systems utilized by central bank-based methodologies. It works in situation when the users maintain highest level of trust amongst each other. New units of currencies could not be added unless mathematical problems are resolved by the users.
Why bitcoin is important?
Bitcoin is important in the current scenario as well as in the future largely due to the increase in the digital payments and processes. In the future, the overall scene for the digital payments would increase and the users might be looking for an alternative besides the government approved procedures. Bitcoin is important because it helps in attaining the ever-cherished free market concept.
The inclusion of external parties, central bank and government in regulating the flow and store of money is negligible. Hence, it is imperative that the future of money payments should be understood by the users. Besides this, even in the current scenario, most of the major companies accept Bitcoins as a measure of exchange. The bitcoins are traded as a currency on a number of exchanges around the world. Even the small and medium-sized companies have now started to accept bitcoins.
To summarize, there is no doubt that there are a few controversies and misunderstandings related with the bitcoins. However, any new (and revolutionary) process has to go through with a certain hiccups at the early stages. This article aimed at resolving some of the basic confusions related with cryptocurrencies, Blockchain and bitcoins.
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