Category: 1. Bitcoin Basics

Cryptocurrency is a digital payment maintained by a network of computers that uses cryptography to authenticate transactions. Depending on how investors expect to make money and how they are structured, some cryptocurrencies may count as securities. If traders of these currencies prop up the price and go online to spread gossips, that might count as fraud. It can be hard to determine if a bubble exists. The only way to ensure that they avoid a burst is mass adoption.

The first digital currency was Bitcoin mined by millions of people in different locations around the world. It was Satoshi Nakamoto, Bitcoin’s pseudonymous creator, who built its decentralized system that anyone could participate in, but no one could own. Although it was open to all, ironically, Bitcoin transactions were supposed to be anonymous. When Bitcoin came into being in 2009, the promise was to be the universal electronic currency that passed around the world in minutes. However, Bitcoin has qualities that make it not only a coin but also a store of value and a network of payments.

Store of value

The exponential jump in the rate of Bitcoin has stoked interest from big banks and even Wall Street. For example, in 2010, using the forum bitcointalk.org, a developer bought two pizzas by paying Bitcoins for the purchase. Fast-forward a few years, and the value of that Bitcoins shot up to 425 million dollars. They are now trading for more than $2,600/- but hardly anything to spend it on.

Network of payments

The software stores a continuously updated ledger that records all Bitcoin transactions. The code sets the scarcity of Bitcoin, and mining introduces new Bitcoins at regular intervals. This form of earning Bitcoins consists of solving the math problems necessary to confirm transactions. Successful solving of those problems using mathematical calculations triggers the creation of more currency.

Limitations of Bitcoins

A civil war is over the future of Bitcoin ever since its launch, and it is already showing strain. Bitcoin’s share of the market cap of all cryptocurrencies fell from 85% to 41%. Its price has soared and not dropped, but many rivals have risen even faster. Moreover, the Bitcoin network can only process seven transactions a second due to code limitations. This quantity is trifling considering that the system aspires to serve the masses. As the load increases, it takes time to confirm transactions, and customers have been at odds. The bickering threatens to condemn Bitcoin to obsolescence or divide the currency into two versions. All in all, although Bitcoin allows the transfer of value, it is slower and more limited in its capacity than some of its latest rivals.

BIGGEST CRYPTOCURRENCY COMPETITOR

One of the biggest among the competitors of Bitcoin is Darkcoin, a portmanteau of digital cash. Part of the stellar success of Dash is due to Bitcoin’s flaws and limitations. This cryptocurrency emerged following Bitcoin’s rise in price in January 2014. Dash is one of the most popular digital currencies because it promised untraceable transactions. Although it saw plenty of dumping, its creator continued to add new features and refine the software. In 2015 it was rebranded as Dash so that it would not be mistaken for a single-feature coin. Gradually Dash gained legitimacy, and its currency’s total value has grown every year.

Advantages of Dash

A new payment method has to be easier to use, more secure and faster than others to attract customers. Bitcoin and the other digital currencies in the market fail on all these three metrics. Dash has functions and features to address such concerns and weaknesses that most others do not have. Also, Dash offers its users a quick send feature that is as easy as using a credit card. People who hold 1,000 coins and above are required to submit all future projects for a vote. The benefit of such a system is that it is a decentralized network that allows making decisions rapidly, avoiding conflicts such as that of Bitcoin, which has no way to compel anybody to adopt a new version.

The next version of Dash will include features that protect against fraud or theft such as moderated transactions. This function would allow funds to be released only upon the receipt of products, and vault accounts, which can stop an impending withdrawal of funds within 24 hours. The goal is to have a medium of exchange that can facilitate everyday commerce. The one of its kind governance system of Dash is its clearest innovation, one that is impossible to replicate.

Yes. There are thousands, with more sprouting up every day. Aside from bitcoin, which is the real progenitor of them all, other well-known alternative currencies include ether, sol and ada. 

Legal and regulatory hazards aside, as both an investment and currency, bitcoin is very risky. When you wake up in the morning, you know pretty precisely how much a dollar can buy. The financial value of a bitcoin, however, is highly erratic and may swing widely from day to day and even hour to hour.

It’s very difficult, though not impossible, for bitcoin transactions to be traced back to individuals. Though they’re secured, they’re also obscured through the use of public and private encryption keys. This pseudonymity can be appealing, especially with companies and marketers increasingly tracking our every purchase, but it also comes with drawbacks. You can never be certain who is selling you bitcoin or buying them from you. Opportunities for money laundering abound.

Theft is also a risk, and there are limited avenues for pursuing refunds, challenging a transaction or recovering such losses. Once a transaction hits the blockchain, it’s final.

While there are some places where you can spend bitcoin, many people just hang on to them, like you would with other long-term investments. The price volatility of bitcoin makes it difficult to transact day-to-day purchases — though a handful of crypto-powered debit and credit cards are beginning to change that.

Is all of this legal?

Short, qualified answer: Yes, for now, as long as — like any currency — you don’t do illegal things with it. For instance, bitcoin was the sole currency accepted on Silk Road, the Dark Web marketplace for drugs and other illicit goods and services that was shuttered by the FBI in 2013.

Since then, bitcoin has largely evaded regulation and law enforcement in the US, although it’s under increased scrutiny as it attracts the mainstream attention of institutional investors. Though it’s legal to buy and sell bitcoin, many aspects of the industry, such as tax concerns for investors, still occupy a gray area that could be vulnerable to future regulation and/or law enforcement action.

Ultimately, the value of a bitcoin is determined by what people will pay for it. In this way, there’s a similarity to how stocks are priced. 

The protocol established by Satoshi Nakamoto dictates that only 21 million bitcoins can ever be mined — almost 19 million have been mined so far — so there is a limited supply, like with gold and other precious metals, but no real intrinsic value. (There are numerous mathematical and economic theories about why Nakamoto chose the number 21 million.) This makes bitcoin different from stocks, which usually have some relationship to a company’s actual or potential earnings.

Without a government or central authority at the helm controlling supply, “value” is totally open to interpretation. This process of “price discovery,” the primary driver of volatility in bitcoin’s price, also invites speculation (don’t mortgage your house to buy bitcoin) and manipulation (hence the well-documented talk of tulips and bubbles).

Bitcoin has made Satoshi Nakamoto a billionaire many times over, at least on paper. It’s minted plenty of millionaires among the technological pioneers, investors and early bitcoin miners. The Winklevoss twins, who parlayed a $65 million Facebook payout into a venture capital fund that made early investments in bitcoin, are now well-known billionaires, according to Fortune. 

Bitcoin is global. You can send it across the planet as easily as you can pay with cash in the physical world. It isn’t closed on weekends, doesn’t charge you a fee to access your money, and doesn’t impose any arbitrary limits.

Bitcoin is irreversible. Bitcoin is like cash, in the sense that transactions cannot be reversed by the sender. In comparison, credit cards, conventional online payment systems, and banking transactions can be reversed after the payment has been made—sometimes months after the initial transaction—due to the centralized intermediaries that complete the transactions. This creates higher fraud risk for merchants, which can lead to higher fees for using credit cards.

Bitcoin is private. When paying with bitcoin, there are no bank statements, or any need to provide unnecessary personal information to the merchant. Bitcoin transactions don’t contain any identifying information other than the bitcoin addresses and amounts involved.

Bitcoin is secure. Due to the cryptographic nature of the Bitcoin network, bitcoin payments are fundamentally more secure than standard debit/credit card transactions. When making a bitcoin payment, no sensitive information is required to be sent over the internet. There is a very low risk of your financial information being compromised, or having your identity stolen.

Bitcoin is open. Every transaction on the Bitcoin network is published publicly, without exception. This means there’s no room for manipulation of transactions (save for a highly unlikely 51% attack scenario) or changing the supply of bitcoin. The software that constitutes the core of Bitcoin is free and open-source so anyone can review the code.

Bitcoin is safe. In more than ten years of existence, the bitcoin network has never been successfully hacked. And because the system is permissionless and open-sourced, countless computer scientists and cryptographers have been able to examine all aspects of the network and its security.

Back in 2013, a bitcoin enthusiast named Laszlo Hanyecz created a message-board post offering 10,000 BTC – which then was worth around $25 – to anyone who would deliver two pizzas to his Jacksonville, Florida, home. As the legend goes, those two pizzas, which another bitcoin early-adopter bought from a local Papa John’s, marked the first successful purchase of non-virtual goods using bitcoin. Thankfully it’s a lot easier to use bitcoin these days!

• It’s simple: Transactions using BTC aren’t that different from those using a credit or debit card, but instead of being asked to enter card info, you’ll simply be entering the payment amount and the vendor’s public key (similar to an email address) via a wallet app. (When transacting in person using smartphones or tablets, often a QR code will pop up to simplify the process – when you scan the code, your wallet app will automatically enter the pertinent information.)
• It’s private: One of the benefits of paying with bitcoin is that doing so limits the amount of personal information you need to provide. The only time you need to share your name and address is if you’re purchasing physical goods that need to be shipped.
• It’s flexible: As to what you should do with your bitcoin, that depends completely on your personal interests. Here are some ideas:
  • You can sell it for cash using an exchange or a Bitcoin ATM.
  • You can spend it online or in brick-and-mortar retailers as you would any other currency by using a Bitcoin debit card.
  • You can hold on to some or all of it as part of your investment and savings strategy.
  • You might choose to that is close to your heart (check out).
  • And if you have a serious budget and unfulfilled astronaut dreams? Richard Branson’s Virgin Galactic happily accepts BTC in exchange for the opportunity to blast off on one of its forthcoming space-tourism missions.

When Bitcoin first appeared, it marked a major advance in computer science, because it solved a fundamental problem of commerce on the internet: how do you transfer value between two people without a trusted intermediary (like a bank) in the middle? By solving that problem, the invention of bitcoin has wide-ranging ramifications: As a currency designed for the internet, it allows for financial transactions that range across borders and around the globe without the involvement of banks, credit-card companies, lenders, or even governments. When any two people—wherever they might live—can send payments to each other without encountering those gatekeepers, it creates the potential for an open financial system that is more efficient, more free, and more innovative. That, in a nutshell, is bitcoin explained.

Bitcoin creates the potential for an open financial system that is more efficient, more free, and more innovative.

Bitcoin is a currency native to the Internet. Unlike government-issued currencies such as the dollar or euro, Bitcoin allows online transfers without a middleman such as a bank or payment processor. The removal of those gatekeepers creates a whole range of new possibilities, including the potential for money to move around the global internet more quickly and cheaply, and allowing individuals to have maximum control over their own assets.

Given that bitcoin was created in large part to serve as an alternative to fractional-reserve banking , it’s not surprising that it differs in some pretty significant ways to traditional currency and payment systems. Here are a few of the key differences:

1. It’s decentralized
Individual users are in control of their bitcoin. There is no central authority that can manipulate or seize control of the bitcoin network.

2. Personal information is not traceable to transactions
This is both a pro and a con in that it protects users from things like identity theft, but it also led to bitcoin becoming a popular payment method for illicit black markets, such as the Silk Road, an online marketplace for illegal weapons and drugs.

3. Minimal transaction fees
Currently there are fairly low fees associated with bitcoin payments. Bitcoin exchanges may offer a variety of services whereby fees vary depending on the type of transaction, but generally speaking these fees tend to be lower than credit cards or PayPal.

4. Reduced risk for merchants
Since bitcoin transactions cannot be reversed, do not carry with them any personal information, and are secure, merchants are better protected from any losses that might occur from fraudulent credit card use.

5. It’s a true global currency
Bitcoin’s value is the same worldwide and it can be used in any country. No one country can overinflate the value or devalue it, for instance, by making more.

Should you invest in bitcoin?

Since its inception, Bitcoin has had its ups and downs, but nothing quite like what’s happening right now. At the time this article was written, one bitcoin was worth $25,000 CAD. But before you jump onto the bitcoin bandwagon, consider a few of the pros and cons of investing in bitcoin:

Pros :

• Bitcoin is no longer just for computer geeks and libertarians. A growing number of mainstream investors and entrepreneurs now see bitcoin as a legitimate asset class, similar to stocks, bonds, or commodities.
• A finite supply of bitcoin could continue to drive value. It is thought that nearly 80% of all bitcoins have already been discovered and, as mentioned, no new ones will be available after 2140. In addition, some are predicting demand to increase particularly if central banks decide to start buying them as foreign currency reserves.

Cons :

• Bitcoin’s uptake as a mainstream payment system has been slow (except among criminal entities). To date, there is still little evidence that bitcoin will replace cash or credit cards anytime soon. Transactions are relatively slow (10 minutes in some cases) and fees are steadily increasing.
• The bitcoin bubble could burst. Over the last decade, bitcoin has been volatile with some fairly dramatic crashes, notably in 2013 and 2015. Also, experts contend that this latest exponential price increase is unsustainable and once prices drop, many buyers will exit the market.