What is Bitcoin?
Bitcoin has already begun to revolutionize the transaction of international business. However, many don’t understand what it is or how it’s used. Who regulates it? How is it counted and maintained? From where did it come? In the article that follows, we’ll explore the history of this new currency, examine how it impacts business transactions, and seek to answer these questions.
The Basics of the System
Bitcoin can confuse some since it’s an entirely virtual transaction system that relies upon cryptography to maintain a fully public block chain ledger. The values transferred between wallets or single-use accounts are real and are recorded openly once confirmed. But the concept of money isn’t quite as simply defined. As we understand it in our everyday experience, money is synonymous with a physical object—bills or coins.
These coins are units of value that have no national root and thus are not tied to any government economy, which can be exchanged for goods, services, or other units of value. Why does this matter? Because the value of a unit of currency fluctuates and is interdependent upon certain other currency values as well as less concrete factors. Wars and trade relationships impact the values of solid, national currencies.
Not so with a cryptocurrency system. Transactions are known as peer-to-peer without the intermediary of a bank or other repository of value. The node network that maintains the block chain of transactions was first introduced in 2009. Developed by an unknown individual or group operating under the name Satoshi Nakamoto, it was released as open-source software.
Privacy in the Public Eye
But how does this system continue to attract and maintain a network of clients on both open and black markets if it’s public? The key is the key—also called a seed. This seed operates as a sort of signature verifying that the transaction has come from the owner of the wallet or account. It also prevents any details of the transaction from being altered or hacked.
Another protection against alteration is built into the system of nodes and the block chain ledger. The term mining refers to the distributed consensus system that permits computers of various users around the world to agree on the state of the system itself. It enforces a strict chronology for waiting transactions, which are integrated into the ledger via mining with specific cryptographic requirements. This prevents alteration of previous blocks in the chain since it would disrupt the chronology of everything following it.
While it does permit substantial fluidity not associated with traditional commerce, the success of the system is bound to its open nature. Each transaction is authenticated by the collective cosmos of nodes and logged openly. Beyond its allure to those seeking to sell or buy illegal commodities or services on the black market, perhaps the only feature to besmirch this novel and useful system of exchange is the importance of optional fees. One may elect to pay a fee, which is not required, and miners will often prioritize the transactions that include the highest fees. This is not unlike the old practice of bribing the maître d’ hotel for preferential seating.
Less than a decade after its introduction, Cambridge University assessed the number of unique user accounts to be as high as 5.8 million users. The popularity of the system is likely due to the system’s open nature and lack of institutions that can impose fees, rules, or penalties without system consensus. Bitcoin has proven valuable to commerce both across borders and within them, providing a secure medium for the exchange of value between vendors, entrepreneurs, and other businesses.