Bitcoin (BTC) is a peer to peer, decentralized network and cryptocurrency which is not owned by any individual person or institution and can be distributed without the permission of a single authority. Bitcoin is a digital currency which is based on the Blockchain technology and have a supply capacity of 21 million i.e. only maximum 21 million bitcoins can be ever created. It is believed to have the potential to replace fiat currency.
Creation of Bitcoin
Bitcoin is an open source software made by an anonymous programmer or a group of programmer under the alias Satoshi Nakamoto. Till date, there are no confirmations on who that person is or from where he belongs. It is estimated that Nakamoto owns around 1 million of bitcoins which amounts to around 11 billion USD as of January 25th, 2018.
The main advantage of bitcoin is that it is no way controlled by the world of governments and banks and corruptions. None has the capability to take into control the bitcoins transactions around the world, impose high fees or take away bitcoins from people by scamming them as every single transaction is transparent and stored in a massive distributed, tamper evident public ledger called Blockchain. This gives people to gain full control over their finances.
Working of Bitcoin
The underlying technology on which bitcoin works is called Blockchain. In a nutshell, all transactions are taken into a block and then it is executed, which takes around 10 minutes and all newly created blocks are chained to their previous ones and made visible to the public. Anybody desiring to learn about their transaction details can look into the ledger which can be accessed from many websites. As bitcoin is an open source network, anyone with a decent computing power can become a miner and take part in the network who solves mathematical problems which lead to the confirmation of the transactions. Execution of all transactions depends on the consensus of all the nodes/computers participating in the network and to maintain that, nodes that successfully confirm the transactions are rewarded financially with bitcoin. As this is a public ledger the mistake of fraud attempt like modifying information can easily be spotted and corrected by anyone in that network. The authenticity of each transaction is protected by digital signatures which corresponds to the sending address.
How is Bitcoin superior than fiat currencies
All currencies in the world are centralized which means, they are controlled by some government or authority and hence charges a hefty amount of fees to people sending money to others, also the transaction takes somewhere from 2-4 business days to occur. Bitcoin, however, on the other hand, is a decentralized network works without the authority of any organization and rather works on the consensus between people participating in the open source network. Thus, it not only leads to faster transfer of money but also it incurs fewer transaction fees which are way lesser than the traditional currency transfers. And as it is decentralized and works on the cooperation of people taking part in the network, even if some part of the network goes offline, it, however, does not affect the ongoing transactions.
Traditional currencies suffer from the old and gold problem of getting counterfeited which is also known as double spend attack. Double spend attack occurs when someone tries to spend the same coin twice. The blockchain technology having being backed by various defence mechanism and the ledger made public has the ability to protect bitcoin from double spend attacks.
Unlike traditional currencies, as bitcoins does not exist in physical, thus they cannot be damaged.
Unlike traditional currencies like JPY, EUR, USD that have their capabilities and recognition within their borders, bitcoin has a global acceptance as it is a digital currency and does not need any conversion to other native currencies for use and acceptance.
Unlike traditional currencies that have a fixed rate of commission percent in money transfer, which is again collected by trusted third parties, bitcoin being a decentralized currency which is not controlled by any middleman makes it possible for senders to send money at very low cost, which comprises of the network charge only. Added to that, paying network charges (transaction fees) are voluntary. The transaction fees are received by the node/miner which confirms the transactions in the blocks. This transaction fee acts as an incentive for the nodes to work honestly and make sure that the particular transaction will be included in the block that is newly generated. In general, in any bitcoin transaction, people either have to choose between the transaction fees and waiting time for transaction confirmation. The more the fees for a transaction, the faster it is processed and vice versa.
How is fiat currency superior than Bitcoin
Recognition and legal questions
Bitcoin’s legal status varies from country to country, in some the use of bitcoin is legal wherein others either it is still debated or not recognized. As bitcoin transactions are anonymous, it is several times linked as the currency for the dark world, criminals thus making it a debatable topic in many countries around the world.
Thus, as it is not recognized in all countries, it cannot be fully adopted by the large organizations or the MNCs around the world.
The price of bitcoin is highly volatile, it has shown us some great heights with skyrocketing prices and also plummeting quickly thus referring to it as a bubble. As it is highly volatile, its prices change rapidly in hours and days which can cause a significant financial loss and damage to investors and organizations.
Unlike traditional currency which is stored in banks and as they are regulated, on financial loss due to mistakes of the banks, guarantees us at least semi or full recovery of funds. Bitcoin, however, on the other hand, is stored in wallets which are not regulated by banks and government. So, in case one loses its secret key, which is the unique key to access any wallet, there might be permanent financial losses as it is highly unlikely to retrieve the lost bitcoins.
Even though Bitcoin has some great capabilities as a cryptocurrency and of course the first successful currency of its kind, however, have certain deficiencies since it is still under continuous development. With that said, as it is developed by a group of people it can also be said to be semi centralized as the developers have control on specifying the rules and policies underlying the working of the currency thus making its future unclear.