Bitcoin is a way to transfer money via the internet without any authority or third party intervention. It has all the record available in a transparent fashion. This presents an alternative to an authority controlled money such as the system of banks. Bitcoin is a peer to peer payment system. It is the cash of the internet. The term cryptocurrency was coined in 1998. Bitcoin was launched in 2009. Since its advent there have been a lot of questions and queries about what is bitcoin and how it works.
The miners have the know how of the system. But for a common man, its difficult to comprehend how the bitcoins are priced or how do they get their value. The software for bitcoin is public so how us the system secured is another concern. As far as the value is concerned since its not compared against gold or silver so there are other parameters from whom bitcoin derives its value. Just like other currencies, bitcoin also is valuable only if it is able to maintain its value over time. Currencies originally were based on expensive comestibles and metals, later on for the ease of exchange and portability issues, money was introduced. Money though itself had no intrinsic value but it was the method with which the system was run.
Money’s value is determined by how much of metal can be exchanged with it. As the time passed, the currencies got fiat which means that they were not compared against metals rather they were accepted by the majority as the standard for buying and selling goods. Despite of this, a currency has to meet some standards to serve the required purpose. A usable currency has to be neither surplus nor scarce. The dollar in the US is printed to cope with a known already decided inflation rate which drops its value. Bitcoin however is flexible in this regard.
The currency should have another quality and that is divisibility which means that it should be available to represent the value of various goods, small and large, expensive and inexpensive. Utility of the currency is also an important factor, which means that it is not only portable but also reliable. Reliability means that money should be tradable against goods and services.for more information visit Euroupe’s most trusted xtb trading broker.
The money should be easily transportable between its users not only nationally but internationally as well. Also the currency should be durable, it should be made of material that is not prone to mutilation or damage and also can be maintained and sustained over time. Moreover, the money should be designed is such a way that no one should be able to use it for malicious purposes, it must have effective security measures to prevent any fake bills from affecting or impacting the value of the money.
Now, lets compare these important properties in context of bitcoin. As far as the scarcity is concerned, bitcoin is being mined at the present moment. It is still however not in surplus. The total amount of mined bitcoins is just 21 million which is much smaller when compared with other fiat currencies in the market. The smallest unit of bitcoin is called Satoshi named after the developer of the currency. Quadrillions of satoshis are in distribution in the global economy. Its divisibility is much higher than the US dollar which can be divided into a hundredth part, satoshi is 1/100,000,000th part of bitcoin. This means that no matter how expensive bitcoin gets, people with little amount of bitcoins can still take part in the transactions. Blockchain is public and transparent which raises concerns regarding security of bitcoins hence a system needs to be established in order for bitcoin to be used in the international markets.
Because of online wallets and tools, bitcoin is transferrable between parties easily and effectively. The transfer occurs within minutes unlike transferring paper money which takes a lot of time and also has a transfer fee. Mining the bitcoin and maintaining the blockchain requires a lot of electricity. One other drawback is that an individual cannot represent the bitcoin physically. The bitcoin is not susceptible to physical harms like burning and tearing, however if the user loses the cryptographic key they can lose access to the wallet however the coins will not be destroyed.
Due to the strong blockchain, bitcoins cannot be counterfeited. If the system is breached, it will necessarily intimate all the participants throughout the network. The bitcoin at the moment lacks any medium through which it can be exchanged which is required for successful utility of the bitcoin.