In December 2017, Bitcoin managed to transition from being a speculative investment into a global sensation. The proof of this is shown in the massive surge of its price during the year. At the start of the year, the value of a single Bitcoin was $900 a coin. A lot of people scoffed because they believe that this was overvalued for a cryptocurrency. However, the cryptocurrency managed to hit the $19,000 milestone in December 2017, which left a lot of people really upset by the fact that they didn’t invest in this cryptocurrency.
Bitcoin is having its moment. In fact, it had a great year. However, one thing that isn’t so clear is how the technology behind Bitcoin and many other cryptocurrencies are set to change the way that we live our lives.
Similar to many other cryptocurrencies, Bitcoin exists on an infrastructure, known as the blockchain. According to experts, the infrastructure that Bitcoin is built on is so secure that this platform does not require a central institution to verify the transactions. Also, the cost of transaction on blockchain is also lower compared to other established processors. However, this has since changed because the Bitcoin transactions are becoming more expensive due to the increase the number of users on the platform.
Speaking about cryptocurrency transactions, they happen between individuals instead of through a central bank. This is why it is called a decentralized currency. It does not have to go through a third party to verify the transaction. A typical procedure when making a transaction using cryptocurrencies is that the user must already have funds prepared in their wallet. Then they will send the crypto assets to another person through the person’s public address. Then this transaction will be recorded on a digital ledger, which is called the blockchain.
It doesn’t matter which cryptocurrency you are using. Each of them will have blockchain, and this is the public ledger that stores information about all the transactions. People who maintain the transaction within the networks are called miners. This activity is also called cryptocurrency mining where people that maintain the general ledger will be rewarded with cryptocurrencies for maintaining the system. In short, these miners have to solve complex math problem to have a chance at obtaining the Bitcoin reward.
Although Bitcoin was initially created to avoid the presence of centralized institutions, governments and banking institutions can still utilize blockchain to improve their infrastructure. In fact, they can look at how blockchain companies incorporate possible commercial users and learn about how they can adapt this blockchain into their systems. Today, banks and large corporations are already expressing their interest toward testing of the use of blockchain in their systems as it can significantly reduce the cost and time of verifying the transactions.
Is the future of Bitcoin?
Bitcoin is a great solution, especially for people living in crisis countries. They can use cryptocurrencies to execute transactions without having to go to a third party. Some of the current crisis countries include Venezuela and Zimbabwe. The citizens of these countries are suffering from the effects of hyperinflation. Cryptocurrencies make lives easier for them as it becomes a reliable way for them to store money despite the fluctuating value.
In these crisis countries, citizens can’t even keep their money in the bank. Using cryptocurrencies and blockchain, transactions can be easily be done using their cell phones. Hence, they will enjoy a higher quality of life. Some people criticised that the value of cryptocurrencies is too extreme to be considered money. However, the citizens in these crisis-stricken countries don’t have any other option. At the very least, cryptocurrencies have a value of some form in them.
Despite the trust that people have in cryptocurrency, there are also naysayers that state cryptocurrencies have too many problems that we cannot build a future on this platform. Here are the several main problems that have been identified with cryptocurrencies.
- Poor scalability
Cryptocurrencies such as Bitcoin cannot process thousands of transactions the way that Visa can. Bitcoin can process from single to double digit transactions.
On one end, privacy that cryptocurrencies offer can be a double-edged sword. For one, regulators believe that too much privacy is not good, especially for the security of the country. Moreover, there is always the possibility that an individual can use cryptocurrencies for the wrong reasons. Governments fear that cryptocurrencies will become an easy channel to fund criminal acts such as terrorism, drug, or money laundering. There is very little that can be traced in Bitcoin transactions.
- Cannot be considered a currency
If anything, Bitcoin cannot be considered as the reliable form of storage. For this reason, it does not have a stable value. Compare this to the traditional currencies that have more stable values. Fiat currencies have fixed values, and we know the value will remain for a reasonable amount of time. Even if there is an increase or decrease in the value of a currency due to inflation, it will not happen drastically.
Therefore, this decreases the possibility of cryptocurrencies becoming a national currency. Despite the fact that some corporations are already offering cryptocurrencies as a method of paying the salary of employees within their organization, not many are willing to go down this path. It is undeniable that Bitcoin is good as a means of exchange, but it does not excel as value storage. The speculative nature of Bitcoin is becoming a hindering factor for it to become a national currency in the future. Critics also believe that Bitcoin will be an expensive lesson to learn for some.
The change in the financial system
Bitcoin presents the possibility of something huge for the world. In fact, the interest in Bitcoin has been shown by the Federal Reserve and also national banks that are testing out blockchain in the infrastructure. Countries such as China and Dubai are already releasing their cryptocurrency as a form of digital currency within the country. There is also evidence to show that countries will eventually turn to cryptocurrencies as more people are inclined to use digital currency instead of physical money. Therefore, blockchain becomes an important medium for the transactions to occur.
The presence of cryptocurrencies in the security space has also improved the level of ability that people have to avoid hacking. From the blockchain infrastructure, security experts have learned more about how they can improve their security infrastructure.
How does this affect consumers?
In the world today, there are a few ways that Bitcoin can make a name for itself. Firstly, it would be phenomenal to see the world switch from the use of physical currency to digital currency. Hence, the value will remain stable, but the transactions will be held using blockchain. The second possible move is to transfer your bank account from the national bank into the Federal Reserve. If all the nation’s money is centralized, the Federal Reserve will have more capability to regulate the economy better.
The idea of having a cryptocurrency which is backed by the national bank is enticing especially if it is done on a larger scale. It can surely make our financial lives much easier.
If you are an average consumer, having a decentralized cryptocurrency won’t change much in your life. With the use of the blockchain, it requires mass adoption for potential benefits to truly manifest in the lives of average consumers. If blockchain is utilized on banking institutions, the transaction fees can be lower and the time required to do transaction will decrease.
Also, it improves the security aspect of the country. Having a nationally backed cryptocurrency means that in the case of fraud, the country can track down those involved through the blockchain. Therefore, it will be very difficult to hide any wrongdoings from the government. The shift of cryptocurrency from a speculative investment to a national currency will not happen within the next few years. Instead, it will take at least 50 more years for it to become a form of digital currency.
Financial institutions and governments realise that they are losing out when they are not adopting cryptocurrency as part of their infrastructure. After all, the nation will benefit from faster transactions. The main concern here is that how the national cryptocurrency is going to be monitored. Will it utilize the anonymous feature or will every transaction be governed by the nation? Hence, different stakeholders in the cryptocurrency community are trying to figure out the best way they can adopt the usage of blockchain in their system.