Bitcoin: What it is and How it Affects Us
By Jon Sands, AGS CORE Technologies
Bitcoin: What it is and How it Affects Us.
Bitcoin is back in the headlines after soaring in value. One bitcoin was worth $8,700 on March 14, up 600% from this time last year.
In countries that accept it, you can pay for goods and services, just as you would any currency. Only bitcoin is completely digital; no one is stuffing actual bitcoins in their pockets or purses.
Bitcoin is disconnected from governments and central banks and is organized through a network known as a blockchain. A blockchain is essentially an online ledger that keeps a record of each transaction all in one place. Transactions are logged every time anyone buys or sells bitcoin. Several hundred transactions make up a block.
But no one controls these blocks. Blockchains are decentralized across every computer and system that has a bitcoin wallet, which you only get if you buy bitcoins.
Bitcoin is meant to be a more efficient, quicker, cheaper, and more reliable form of payment than money tied to countries or banks, a truly universal currency. Also important, Bitcoin and other cryptocurrency are the only form of money users can hypothetically “mine” themselves, if they (and their computers) have the ability.
If a user don’t have the ability to mine the currency themselves there are alternatives. Users can buy and sell Bitcoin through online exchanges like Coinbase or LocalBitcoins.
Each bitcoin has a complex ID, known as a hexadecimal code, that is many times more difficult to steal than someone’s credit-card information. There is left of a chance bitcoin or fractions of a bitcoin will go missing because there are a finite number of Bitcoin to be accounted for.
On the other hand, fraudulent credit card transactions are refundable, fraudulent Bitcoin transactions are not.
Bitcoin is exceptional in that there are a finite number of them: 21 million. Satoshi Nakamoto, bitcoin’s mysterious founder, arrived at that number by assuming people would discover, or “mine,” a set number of blocks of transactions daily. The number of bitcoins released relative to the preceding cycle gets cut in half every four years. The reward to miners for finding new blocks are cut in half every four years as well. (The reward right now is 12.5 bitcoins.) As a result, the number of bitcoins in circulation will approach 21 million, but never hit it.
This means bitcoin never experiences inflation, outside of bubbles and selling runs. Unlike world currencies, whose buying power central banks can dilute by printing more paper currency, there simply won’t be more bitcoin available in the future. That has worried some skeptics. It means a hack could be catastrophic in wiping out people’s bitcoin wallets, with less hope for reimbursement.
Historically, the currency has been extremely volatile. But go by its recent boom — and a forecast by Snapchat’s first investor, Jeremy Liew, that it will hit $500,000 by 2030 — and nabbing even a fraction of a bitcoin starts to look a lot more enticing.
Bitcoin users predict that by 2024 94% of all bitcoins will have been released.
As the total number creeps toward the 21 million mark, many suspect the profits miners once made creating new blocks will become so low they’ll become negligible. But with more bitcoins in circulation, people also expect transaction fees to rise, possibly making up the difference.
Jon Sands is the Business Development Executive for AGS CORE Technologies in Stuart. AGS CORE Technologies is a local technology firm on the Treasure Coast, specializing in cyber security and outsourced IT.