Government Currency of the people, by the people, for the people, shall not perish from the Earth
— Abraham Lincoln, November 19, 1863
Government Currency of the people, by the people, for the people, shall not perish from the Earth
Unless you currently reside on Mars or have zero interest in financial matters, it’s been almost impossible to avoid the word Bitcoin. You may have come across it in relation to the future of E-commerce, Fraud, new and innovative form of payment or just plain fairy tales. So what is this Bitcoin all about? Is it indeed the future or just a passing trend?
At its core, Bitcoin is digital currency, and also a payment method. Bitcoin was built on the foundation of the Internet itself, using the global network both to generate the bitcoins, as well as to record and verify every transaction. Bitcoin is not controlled by any country, individual or company.
In other words, it’s a currency that exists only in the web sphere; managed by no one, and by everyone. Confused? Don’t be, just keep on reading and it might become clearer (maybe).
According to Oxford dictionary, currency is “A system of money in general use in a particular country”, so in fact, Bitcoin is indeed a system of money but not limited to any country and not regulated by any government. You can use Bitcoin to pay for goods and services that accept it as a method of payment, the same way you can pay in USD for good and services that accept USD, but the only difference is that you cannot hold Bitcoin notes and there are no Bitcoin coins that will burden your wallet. It is purely Virtual.
The fact of the matter is, most of our interaction with “regular” currency is done by using the virtual form of it. I assume that you don’t get your salary in a form of bags of coins or envelope of notes, and when you buy airline tickets you are likely not to pay with a pack of notes, but will allow virtual bits and bytes to move in the web sphere in a form of credit card transaction You don’t suspect that there is a pile of notes sitting in your bank account.
So actually, Bitcoin or not, we are living in an era where our money is mostly virtual.
With physical money (bills and coins), a government decides when and how much cash to print and distribute. Bitcoin, by contrast, doesn’t depend on a government. People create Bitcoins through a process called mining, and yes…you can also create Bitcoins.
Sounds like a dream to create your own money, but before you run and “print” your Bitcoins you should know that it is not so simple- Bitcoin Mining is the process of cracking a complicated cryptographic puzzle by using computers running Bitcoin software.
Mining Bitcoins requires more computing power than the laptop you are using to read this article, so people buy specialized Bitcoin computers (or adding additional computing power to existing devices). Bitcoin miners can group together to form clusters of computers that work together to solve those cryptographic puzzles.
Mining clusters can involve thousands of computers owned by individuals that never met and collectively generate enough commuting power for Bitcoin mining.
When the program solves one of these puzzles known also as “blocks”, you (or your group) are rewarded with Bitcoins.
Warning! Geeky paragraph ahead…
These cryptographic puzzles get increasingly harder as more Bitcoins enter into circulation. In addition, the rewarded Bitcoins are cut in half at defined intervals, it means that there is a gradual slow-down in the rate at which new Bitcoins are created. The Bitcoin system was built with a maximum limit of 21 million Bitcoins. It means that no mining can take place after 21 million Bitcoins went into circulation. Currently there are ~12.2 million bitcoins in circulation.
One Bitcoin is divided to “Satoshis”. A Satoshi is the smallest fraction of a Bitcoin that can currently be sent. One Satoshi is equal to 0.00000001 BTC. It means that Bitcoin can be used for extremely small transactions.
Regular consumers (not miners) can buy bitcoins online through exchanges or directly from other owners of the virtual currency. At this moment, 1 bitcoin is selling for around US$447.
Any product and service, anytime and anywhere - It is possible to send and receive any amount of money instantly anywhere in the world at any time. No cross borders delays, banks holidays, or any other limits. As long as you are connected to the internet you can pay and accept payments with Bitcoin.
Low fees – The fees are almost non-existing. Bitcoin payments are currently processed with either no fees or extremely small fees compared to any other form of payment such as Credit Card, bank transfer or digital wallets such as PayPal. Fees only apply when converting Bitcoins to other currencies. As the amount of merchants that accept Bitcoin will grow, there will be less of a need to convert Bitcoin to other currencies.
Buyers’ advantages – In Bitcoin transactions, the buyer is well protected. It is impossible for the merchant to charge additional unnecessary costs or hide unwanted fees like with credit cards or standing orders. Bitcoin also protects the buyer from identity theft which is a common problem in developed countries, since Bitcoin payments can be made without giving out the customer’s personal information for a transaction.
In addition, since the Bitcoin system is an open-source system, everyday a variety of encryption and backup software is released. This keeps Bitcoins safe and gives the control back to the customer.
Anonymity - Each bitcoin transaction is recorded in a public log, however the actual names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also allows them to buy or sell anything without easily tracing it back to them.
Merchants’ advantages - Bitcoin protects merchants from damage caused by fraudulent chargebacks, since transactions are irreversible and do not contain customers’ sensitive or personal information, which open the merchants to risks and forces them to take security measures such as applying PCI compliance. Merchants can approach new markets where either credit cards are not common or fraud rates are high.
Transparent - All information concerning the Bitcoin money supply and transactions is stored in a Block Chain. Block Chain is a database that holds all the information and shared by all computers participating in the Bitcoin network. In other words, the information about bitcoin transactions is not held by a centralized body that can abuse it.
This allows the core of Bitcoin to be trusted for being completely transparent.
Unlike most of the countries that took a decision to ignore the Bitcoin phenomenon, the Monetary Authority of Singapore (MAS) decided to take proactive measures to look into this and explore the regulatory implications of trading with Bitcoins.
This move makes Singapore one of the first countries in the world to regulate virtual currency intermediaries for money laundering and terrorist funding risks. The regulatory requirements will resemble those imposed on money changers and remittance solutions that accept cash transactions.
This act has mainly positive aspects, since it increased awareness to Bitcoin as well as placed an additional layer of security to whomever deals with trading bitcoins.
Simplicity -Dealing with Bitcoins is still in the domain of the tech savvy users. Managing a Bitcoin wallet, buying/selling Bitcoins as well as accepting it requires a fairly large amount of “clicks” and efforts. Many vendors around the world are working towards simplifying the usage and make it more user friendly and accessible.
Perceived regulation – The ‘romantic’ notion that your money is in good hands is nice, but users still prefer to have a phone number or email address to contact if something goes wrong with their precious Bitcoins. Here is the conflict between keeping it unregulated and “democratic”, to having the option to call and converse with a human voice when you encounter a problem with your Bitcoin transaction.
This can be done by an entity that will be perceived unofficially as a regulator of this domain.
For example, we trust our most precious information such as Emails (e.g. Gmail) and family photos (e.g. Facebook), companies which are not regulated but we developed a notion of trust that they will do everything within their power to protect our information. (yes…I know some of you are raising an eyebrow while reading this)
Critical mass - Like the FAX machine or telephone that waited for a critical mass of users to become a relevant tool, so does Bitcoin. Its success will be determined if enough merchants, as well as users will adopt it as a legitimate currency. This may happen gradually, or in a “boom” triggered by a defining moment.
To summarize: We still trust the banks with our money and trust the governments to protect our currency in times of crisis, are we really ready to let go of this? Are we ready for a new type of currency which will be regulated and monitored by the people and for the people?
The article was contributed by YuuPay Secure, the leading Global Payment Service Provider for Online and Mobile Merchants.
Yoav is the CEO of YuuPay Secure Pte Ltd, a Singapore-based Payment Service Provider. He has over 15 years of experience in the Payment, Mobile and IT Industry, specializing in Mobile Payment, Mobile Value Added Services (VAS), Internet and Mobile content. He has an MBA from Heriot Watt University and a BA in IT and Business Administration.
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