25/07/2017
Bitcoin, the Blockchain, and the Future of Money
Bitcoin with Green Binary
Image Courtesy of Huffington Post
Bitcoin is a revolution, no matter what happens in the near future, because of the blockchain. The blockchain provides the ability to digitize money in a way that does not need a central authority to create it, nor does it need a 3rd party to act as a middleman for transactions. Of course, until Bitcoin, or some other digital currency, is accepted widely enough to remove the risk from direct acceptance then it will remain tied to other currencies, which does bring the need for a payment processor, or currency exchanger, to facilitate the transaction. Still, that is a problem that will be addressed with increased adoption and further development of the network.
The pros and cons for Bitcoin are very different than those of gold and USD. It takes the best of both currencies, and cuts out the bad:
Positive Aspects of Bitcoin
Bitcoin has built in scarcity and usefulness that, in my opinion, surpasses that of gold. While gold has many industrial uses, which gives it inherent value, the use of gold as a currency, or store of value, can limit how cost-effective it is to use in many products. Bitcoin has a usefulness that does not detract from industry. The Bitcoin network’s processing power, combined with the blockchain, provides a public ledger that can be easily used for accounting purposes, it automatically verifies every transaction’s validity, prevents counterfeiting, and provides a platform to build more complex structures on. These abilities can only be obtained with a traditional currency by using businesses that sell the services, or, for businesses, by hiring staff to handle them.
Bitcoin cannot be truly manipulated. While Bitcoin’s current value may be subject to manipulation by wealthy individuals, as the total “market cap” is still low enough to allow this, the actual supply of bitcoins cannot. This means that the core rules won’t be changed, nor will certain groups be given special advantages over the currency. Rather than a currency that is controlled by a small group of individuals, it is a currency that is controlled by consensus of everyone involved.
Bitcoin transactions are instant. When a bitcoin is sent, the transaction immediately begins to spread through the network. The recipient can see that they have received the transaction instantly, or within a few seconds. Then, once it has been fully confirmed, it would be statistically improbable for it to be invalid. I would say impossible, but that is not completely true. However, after a few confirmations, you are more likely to win the lottery than have a transaction turn out to be invalid.
Bitcoin transactions are irreversible. This one is a double-edged sword, at least currently. While it eliminates the risk of charge-backs, which currently plague online merchants, and drive up the cost of all goods for everyone, it also allows for dishonest merchants to accept bitcoins, then not provide the service, or goods, promised. However, the downside to this is mostly limited to lesser known, or anonymous merchants, as it is still illegal to do this, and larger merchants have a reputation to maintain. Various groups are working on solutions to this problem, with the likely answer being a decentralized escrow and/or arbitration system.
Bitcoin is transparent. The reason I can make some of the statements above is simply because there is nothing hidden with Bitcoin. Unlike USD, where the inner workings of the Fed and what they will do with the currency, or even gold, as it is difficult to make an accurate judgement on how much gold is currently available, or may become available in the future, Bitcoin’s parameters are known. The code that the Bitcoin network is built upon is open source, so anyone with the ability to read the code is free to do so, and that code governs everything about Bitcoin. The total number of coins, how transactions are handled, or what will happen in any hypothetical scenario can be examined. Even changes to the code can be proposed, and adopted, if the entire network reaches consensus, as previously mentioned, and those changes can be proposed, and tested outside of the network, by anyone.
Bitcoin is the most efficient transaction processing system ever created. Because the ledger is handled by computers, and the way transactions are processed and recorded is based on mathematics, it is always verifiable, and is not subject to errors. This automatic process is more efficient than any payment processing system that relies on humans to analyze, as it does not need to pay for traditional labor. Only the miners must be paid, and people are generally willing to run mining machines as long as their revenue is even slightly above maintenance and energy costs. This is why the blockchain, and cryptocurrency, will be the future, even if Bitcoin is replaced. The efficiency of the system cannot be matched except, potentially, by another decentralized, automatic system.
Bitcoin is infinitely divisible. Currently, 1 bitcoin can only be broken down into 100,000,000 smaller units, known as satoshis. However, that limit is not set in stone. If, at some point, more than 2,100,000,000,000,000, or 2.1 quadrillion, units of currency are needed, then it would not be difficult to allow the currency to be broken down to another decimal point or two
