You may have heard or read about the Bitcoin as the next big thing in online payments, but what is it and how does it work? The Bitcoin is what is known as a cryptocurrency, a digital unit of payment that is protected from counterfeiting because of the encryption technology that surrounds it.
The Bitcoin was invented in 2008 by a computer programmer who was using the name Satoshi Nakamoto – although their real identity has never been discovered. It’s thought that the aim was to create a whole new kind of currency for the digital age that sidestepped banks and credit card companies to create direct transactions without the need for an intermediary.
Ever since its launch the one thing that has typified the Bitcoin more than any other has been the volatility of its value – and for many financial experts this has been its weakest feature. For example when the US government acted to close down payments between a company called Dwolla and the largest Bitcoin exchange MtGox its value plummeted by 75% – however it did gradually begin to recover – although now it’s nowhere near its record high value of around $1300 it reached in late 2013.
Bitcoin transactions work like any other with a buyer exchanging them with a seller for agreed goods and services and there are some real positives to the system. Firstly, no third parties are involved to take a cut for handling the transaction – and because all are recorded in an online ledger called the “Block Chain” it’s a secure and reliable system too. One of the biggest drawbacks, however, is the comparatively few transactions that the system can handle at any one time. So if it is to expand this is an issue that will definitely need to be addressed.
In fact many people are looking to the future of the Bitcoin and, contrary to the gloomy predictions of several economists, there is some optimism that it will become more and more widely used as well as becoming more valuable too. For example an increasing number of businesses are beginning to welcome it from online gambling to physical retail outlets.
Because only a finite number of Bitcoins will ever be released there are also some very good reasons to suppose that the overall trend will be for the value to increase, certainly if it follows the typical principles of supply and demand.
With growing popularity, however, government intervention and regulation will surely follow close behind, particularly if it proves to be so popular that it has an effect on the world’s currency and stock markets.
But in a world where the surprising keeps on happening in everything from politics to sport, it would be a foolhardy person who doesn’t believe that the future of the Bitcoin is something to be closely watched.