Bitcoins: It's Journey From Illicit Website Transactions to Mainstream Usage
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From being largely overlooked, bitcoins are now the new obsession of the season. News of teenagers becoming millionaires overnight to increased regulation among bitcoin exchanges — a lot of things are happening in this world of cryptocurrency.
Moving to Bubble Territory
Bitcoins, it now appears have finally become mainstream.
The staggering rally in prices which bitcoins have witnessed in the short term, if nothing else, signifies a possibility of it having now moved into bubble territory. Anyone looking to experiment with bitcoins should do so with utmost caution.
In the past three years, the big three Indian Bitcoin exchanges, including Zebpay, Coinsecure and Unocoin operated with self-regulated trading platforms with strict Know Your Customer (KYC) and anti-money laundering systems in place, despite the lack of regulations in the digital currency industry and market. The fact that the government of India has begun regulating these local exchanges could signal a positive stance from them in the future.
Its Illicit Past
Bitcoin technology began to enter public discourse in 2011, largely through its association as an anonymous payment system used on illicit and underground websites. The story mischaracterized the technology and failed to identify the most important and varied potentials of what Bitcoin has to offer.
Let's attempt to reboot your introduction to Bitcoin and convey some of the reasons why many in the financial and technology sectors are excited about its promise.
Its Present Usage
Bitcoin is an information technology breakthrough that facilitates both a secure, decentralized payment system and a tool for the storage, verification and auditing of information, including digital representations of value. It’s an online currency of sorts, which facilitates transfers and transactions online. It could also be a valuable hedge against governments and manipulations from bankers that we have so well grown accustomed to hitherto.
Not Controlled By Any Rights Holder
Unlike traditional computer networks and payment systems, Bitcoin is not administered by any centralized authority or controlled by any rights holder. It is instead a peer-to-peer reviewed open source network, wherein users collectively provide the computing power and resources to process transactions.
The value a bitcoin denotes has seen excessive volatility over its short history, increased acceptance and liquidity should help diminish the uncertainty.
How Are They Created
Without dwelling too much on the details, bitcoins are created using a process called mining, wherein you would use your computational power to mine every new bitcoin. This process involves you running an algorithm on your hardware and the bitcoins, thus mined, will be proportional to the power and other computational resources you have expended in this process.
A bitcoin can be subdivided to eight decimal places, with the smallest unit – a satoshi – having a value of 1/100,000,000th of a bitcoin. In sum, under the Bitcoin source code, a total of 21 million bitcoins will be created as mining rewards and distributed as compensation to miners in the process. Just over 70 per cent (14.7 million of 21 million) of all bitcoins have been mined to date. By 2018 January, approximately 80 per cent of all bitcoins will have been mined.
The ease in payment — you could transfer money anywhere in the world without having to worry about crossing borders, bank holidays or paying a regulator, etc. whilst using Bitcoins. The control and security provided by a bitcoin far exceeds any traditional network, merchants cannot overcharge, and it is immune from identity theft as personal information remains hidden. Also bitcoins can be backed and encrypted to ensure the safety of your transactions.
Difficult to use. Bitcoin is not consumer-friendly. Most software to control, provide custody or transact in bitcoins is complex or difficult to use. Often, third-party software and solutions that can simplify this use involve entrusting bitcoins to such third parties.
The biggest disadvantage with Bitcoins is the limited retail and institutional adoption; it still has a long way to go before more institutions accept this digital currency and it can be viewed on the same playing field as any other traditional player.
In summary, bitcoins we believe are a step in the right direction, but stringent measures need to be in place to ensure no malpractices are conceded. Bitcoin has evolved past the historical difficulty and unsavory public association with bad actors. The promise that is provided is something which all participants in finance or FinTech must be keenly aware. Additionally, navigating and understanding the complex and evolving regulatory constructs around Bitcoin ventures is imperative for businesses seeking to participate in this exciting new ecosystem.