Bitcoins are a new system of digital payment that has been developed in order to lower transaction fees as well as eliminate the bank (the middleman). Unlike using a bank, the system of bitcoins is decentralized and is not owned by anyone. Though anyone can use bitcoins, there is no central command. The bitcoin has become a new alternative to money as it shares many characteristics with money. The bitcoin has value that is based upon the law of supply and demand. With a fixed supply of 21 million bitcoins, an increase in the overall demand will continue to increase the price of the bitcoin as the shortage becomes more relevant.
Are Bitcoins Trustworthy?
Bitcoins have been criticized since 2008 as being unreliable and untrustworthy. This prompted the immediate release of the payment system as an open-source software. This enables any developer to view the code and to make any necessary modifications to the system. Bitcoins can never be physically printed and the value can never depreciate through inflation. What makes bitcoins unique is that this system is based upon mathematics and not based upon the gold and silver exchange system.
The Security of the Bitcoin
Critics of the bitcoin have openly expressed the possible problem with security of this open-source software and how reliable and safe it can be to make payments to purchase a bitcoin. It has been found and continuously tested that the cryptography of bitcoin is foolproof and is similar to the cryptography of banks. Since the creation of bitcoins, this digital payment system has withstood countless attacks that have all failed. If bitcoins have any faults, it is not with the quality of the programming.
The bitcoin has been tested and found to be a trustworthy system that is only found as unreliable based upon the opinions of the public. Bitcoins’ value cannot be manipulated in any way as its value is only determined by the law of supply and demand. As it is still a currency that is only used by a small number of individuals and businesses, the currency is still extremely volatile. This means that the value of this digital currency changes significantly over short periods of time and can still be risky to use.
The Legality of the Bitcoin
In addition to the security of the bitcoin, there have been many questions and concerns that touch the subject of the legality of the bitcoins. When doing research, it has been found that the uncertainty of the bitcoin is attributed to the newness of the concept of a digital payment system that is decentralized. As the bitcoin is a new and decentralized system, the concept and transactions of the bitcoin have been banned in several countries such as Russia and Argentina.
The Characteristics of Bitcoins
Many of the characteristics of bitcoins are similar to that of money. Some of the differentiating characteristics include:
The bitcoin is not controlled by one person with authority and is not controlled by any bank. This means that one central authority cannot cause a centralized meltdown of the system. An example of the faltering of the central banking system was demonstrated in 2013 when the Central European Bank in Cyprus had control over taking the money of the public in 2013.
2.) The easy setup of the bitcoins
Unlike with banks, bitcoins have an easy and efficient setup process. In addition to the efficiency, there are also no fees that coincide with opening up a bitcoin wallet.
3.) The transactions of users is transparent
In order to show the reliability of the bitcoin, the creators of the software have allowed for all transactions through with the bitcoin to be public. All of the transactions that have ever been made are visible on the what is called the blockchain or the general ledger. This public ledge shows all transactions that have been made with this system with the exception of the name of the individual. This method is used to ensure that the public knows and understands how trustworthy this digital system is.
The Efficiency of a Decentralized System
The bitcoin is a volatile yet working system that has a fixed supply of 21 million bitcoins. In order to keep records of the transactions made and to keep this process running smoothly, it is the job of the miner to confirm transactions so that the entirety of the networking systems is running smoothly. Miners are developers who are able to check the authenticity of any transaction that is made person to person. Miners make sure that the general public ledge is never tampered with and remains intact. This is done by creating what is called a hash which is essentially a record of the approval of a transaction. The creation of a hash includes the transaction in addition to other data to make it secure.