Bitcoins: Civil Services Mentor Magazine - June 2014

Bitcoins

Bitcoin is one of a kind electronic payment system that has been newly developed. It is actually a “decentralized peer-to-peer currency”. It’s unique since there is no central body that controls the network . Technically Bitcoin is operated by people who are using it .It is not the first electronic payment system that has come up in recent times, however it is unique in it’s own way since unlike other electronic payment systems (say for instance PayPal) it has its own currency not real, but virtual.Owing to it’s digital nature ,through bitcoin a person can make instant payments to any individual residing in any part of the world. Bitcoin is experimental,that means it has not been established as a successful venture as yet.

Problems with Bitcoins

Bitcoins have few significant problems at the moment, the first and the foremost being bitcoin’s volatile valuation. In 2013 alone the price of a single bitcoin spiked to over a $1000, with investors buying up banking on it’s profitable nature.The aforementioned volatility is partly due to the many security and legislation problems facing the currency. Bitcoin exchanges have been attacked by hackers ,the most recent one being attack against the Mt Gox exchange, while government does not have a fixed opinion on the legality of the currency has.These factors have adversely affected the currency’s value, along with putting a big question mark on the reliability on this currency.

The silver lining

Bitcoin does not have any central authority, hence the pro-bitcoin people believe that there wouldn’t be any external regulations to weigh it down. But the point to ponder is that, the technology behind this could still be of use to the financial sector.The lack of central authority has a number of benefits, including the fact that there is no charge when making payments in bitcoin, be it locale or international. This could not only benefit smaller shops that have to pay a fee to card companies when processing transactions, but could also help individuals whose local financial systems are in trouble or having some technical snag.There are likely benefits to security as well.

Few Unique Facts

No-one really knows who the actual inventor of ‘Bitcoin’ is. Someone calling themselves Satoshi Nakamoto published the rules to the Bitcoin protocol online in 2008, with the network launched quietly in 2009. The nearest thing Bitcoin has to a spokesperson is the developer Gavin Andressen, who is the chief scientist at the Bitcoin Foundation, a non-profit that provides a hub for developers working on the Bitcoin code.

However, because the code that defines Bitcoin is open-source ,there are also a large number of so-called ‘altcoins’: variants of the currency with various tweaks. For instance, Litecoin, uses different algorithims to shorten the transaction time while Dogecoin was started as a joke but has won the respect of some fans of cryptocurrency simply because, unlike Bitcoin, it’s perceived ‘silliness’ means it is more likely to be spent.

Future of Bitcoin

Governments and financial institutions of various countries may still not put a stamp of legality over this breakthrough but they have not been able to ignore it as well. Few are taking the currency’s core innovation – the blockchain method of verifying transactions without a central authority – and applying it to a number of other problems. Bitcoins decentralized system of use and it’s reasonable cost might be tough to resist. So there is no giving up on it yet.

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