Written by Sam Engelman
Few people know of the function or even the existence of the new financial phenomenon called Bitcoin. This digital currency is impacting the world of finance in ways similar to how the Internet changed the meaning of publishing. It is a new form of currency much like the Dollar, Euro, or Yen, but is far more difficult to regulate and is decentralized.
For those that do not know, Bitcoin functions like this: a person may obtain the free Bitcoin miner, which uses your computer’s processing power to extract Bitcoin information from Bitcoin blocks. The amount of Bitcoins generated fluxes with the network to maintain a predictable amount of Bitcoins generated, causing the total amount that exists at one time to increase at a predictable and steady rate. These coins are stored in a digital wallet and traded with other people online for goods and services. When they are traded, each transaction is verified by a miner and stored in the network to prevent double spending.
Bitcoin has many positive features to it, according to “weusecoins.com”: transactions are anonymous and person-to-person, occurring without the mediation of a bank or similar financial institute. Once a transaction occurs, it vanishes (other than that Bitcoin has been used) and can never be monitored.
Due to the lack of any bank getting their cut, transaction fees are much lower and final prices on goods and services are more competitive. Furthermore, because of its decentralized nature, no government, law enforcement, or intelligence agency can freeze your account. Bitcoin is acceptable as legal tender amongst any computer on the planet, making trade easier and allowing it to bypass many financial institutions and restrictions. Finally, it requires no arbitrary limits or prerequisites to use or obtain them.
Bitcoin does have its drawbacks. Due to its anonymous nature, it currently cannot be taxed (of course, whether this is a bad thing varies from person to person). Also due to its anonymous nature, it can be used to purchase illegal or dangerous products such as drugs.
Recently, according to PCWorld, a hacker found their way into a Bitcoin banker’s computer and made off with 4,100 Bitcoins – or about $1.1 million. According to PCWorld; “The attacker compromised the hosting account through compromising email accounts (some very old, and without phone numbers attached, so it was easy to reset). The attacker was able to bypass 2FA due to a flaw on the server host side.”
Whether you like or dislike this new oncoming trend, Bitcoin and likely other digital currencies of a similar nature shall be making a deep impact in the financial sector. You may not have to worry too much though, the way the system is set up according to Investopedia, “the total issuance is limited to 21 million” – and since half of these Bitcoins already exist, it will become much harder to obtain new Bitcoins.