Take a glance at the past, if you wanted to fill up a pitcher of beer then you could have easily done it in exchange of anything you possessed, which was roughly assumed to be bearing the same value as the drink you were buying. This was one simple example of a system of exchange which was popularly known as the “Barter System”. Pretty interesting stuff right? Actually, it is. This method of exchange didn’t use any kind of medium of exchange; like let’s say…eh…ya, ‘money’ (which didn’t even exist back then). But this “Barter System” is now resting in peace inside the grave which has been dug by the very invention called ‘money’ that we have in our wallets. Yes, you’re on the right track. This invention has changed the very aspect of the concept known as buying and selling. Barter system’s own drawbacks paralyzed it and threw it into its eventual death and since it’s said that an end leads us into a new beginning, money was born out of its ashes!
‘Money’, the successor of the barter system, are pieces of paper which you can exchange for a glass of beer today. This revolutionary system changed the whole scenario of the economic world. In fact, the concept of an economy came into existence only after the invention of money. Everything, mind you, everything in this system that we live in is now based on money. Be it a beggar or a billionaire, nobody is exempt of its effect and influence on them. But do you really think these pieces of paper will be the “end all” and “be all” of our economic system of buying and selling? Let’s take a moment to think about this. We saw our old school “Barter System” and then we moved to the beloved “money” based economy, but as we continue our voyage towards the future, we are always encountered with astonishing inventions and discoveries which we didn’t even imagine before. In this medium of the exchange world, we’ve also come across a game-changing innovation known as the “Bitcoin”.
What is Bitcoin?
So, here we stand, in the 21st century, which amazingly changed everything. Digitization is happening and people love it. Slowly and gradually people are adapting to this new environment, that too at such a great pace that probably in near future, Mother Earth might have one more synonym – the “Digital World”. The Bitcoin, a term that may be familiar to some while completely new to others. So, let’s take a perspective towards this concept from the roots of the matter for all the newbies out there. It is a form of digital currency, which is created and held electronically. No one has control over it, which is to say that the Bitcoin is not under the control of evil corporations like our present economic system is (surprise, surprise for those who did not know!). Another interesting fact is it is not at all printed, unlike other currencies like Rupees, Dollars and so on. Bitcoins are produced by people (again you’re thinking right – you can also produce it!), businesses, running computers all around the world, using software that solves mathematical problems.
They are used to buy things electronically. “So what,” you may ask, “What’s so new to it?” “I pay while buying through the net or mobile banking, why should I use it?” These are some of the questions which are popping up in your minds now. I know it but here’s something unique about it which makes it different from other types of currencies. It is ‘decentralized’. Confused? No need to be. Decentralization implies that no single institution has the power to control the network. Which means no major bank will be able to control people’s money. Getting it?
It was created by a software developer – Satoshi Nakamoto. His motto behind this proposal was to introduce a currency, which would be independent of any central authority, that could be electronically transferrable, instantly transferrable with very low transaction fees. It was published in the year 2008 by him and was available as an open-source software in 2009.
The users of Bitcoin can conduct transactions without any intermediary. There are network nodes which verify the transactions and these are recorded in public ledgers called Blockchain.
Some characteristics of Bitcoin
· Based on mathematics
Unlike conventional currencies which are based on gold or silver, Bitcoin is based on mathematics. People use software programs to produce Bitcoins. These software programs follow mathematical formulas.
· Conventional to set up and use
If you want to open up an account in a particular bank, you have to go through numerous head aching paper works. Well, the same is not in the case of setting up an account popularly known as Bitcoin Wallets. As we keep our physical money in our wallets or purses, saving Bitcoins needs a wallet, albeit a digital one. There are many wallet service providers available where you can freely set up an account (quite as simple as opening a Gmail account) where you can exchange Bitcoins i.e., buy or sell it. A few of them are Coinbase, Localbitcoins, etc.
Blockchain stores every detail of transactions which are publicly available. This simply means that whenever your transaction happens it is visible to everyone. On the other hand, many steps are taken by people to conceal their transactions; for instance, by using more than one address or not transferring a lot of coins from one address.
· No transaction fees
Yes, you read it right, other banking institutions charge some transaction fees whereas here in this world no fees (or sometimes negligible) are being charged for transactions. Plus one more advantage here is that it’s very fast. The moment you sent or requested for it, within a few seconds it’s done.
Some people consider this as a major disadvantage. Sadly, it is so. Every transaction you make is non-reversible so you need to take some extra care while transacting Bitcoins. The reason behind this is its intangibility.
There’s another term associated with Bitcoin which is called ‘Mining’. We know that in a traditional money system, the governments print the currency but here, in this case, we know how Bitcoins are produced. We also know how transactions take place. We read about blockchain above, that’s the place where miners come into existence. Their role is to confirm all the transactions and write them down in the general ledger. Before the confirmation, all the transactions are held for a specific period of time in lists known as ‘blocks’.
This makes the Bitcoin users sure that their transactions are safe since miners are doing their jobs of verifying the transactions. When a block is created, it is put into a process through miners. They apply mathematical formulas to the information of the blocks which turns into something which is far shorter; a random sequence of letters known as ‘hash’. It is stored along with the block. Miners don’t only use transaction data to generate “hash”. Some other pieces of data are also used and one piece amongst them is the hash of the last block stored in the blockchain. So, it becomes a digital version of a ‘wax seal’. It gives confirmation about the block and the next block created afterward.
So what is the point of discussing about mining? The real picture comes here. Every time one miner successfully creates a hash, he is rewarded with 25 Bitcoins (currently – 1 Bitcoin is approx $409)!
Since their invention, Bitcoins have seen major changes in the way in which they have evolved and changed over time. Many businesses are openly accepting Bitcoins as a method of payment because of its low transaction fees. Due to its ease of handling, people are also accepting it and extensively using it. Many people think that it should be accepted as a major tool of payment as it follows independence and convenience to users.
So the future of the economy is invariably in the digital world. There would soon be a day when the pieces of paper which we use today for our transactions will be replaced by Bitcoins, which will be the medium through which the economy evolves and turns into one where corporations and large elitist groups are not in control of the economy, but the people themselves are! Let’s hope we see that day soon.