Mar 18, 2021
Why Bitcoin Is The Currency Of The Future
Bitcoin is the future and its growth has just started.
Bitcoin has been dominating the financial news recently with new all-time highs, boosted by celebrity (most recently, Elon Musk) endorsements. So, what is it and why is it the future of currencies?
What is Bitcoin?
Bitcoin is an alternative type of payment system. It is a digital currency created by the mysterious and pseudonymous Satoshi Nakamoto in 2009, and was originally set out in a whitepaper published here.
Unlike government-issued currencies, bitcoins are operated by a decentralized authority, and thus, offers lower transaction fees than traditional payment mechanisms. Now, there aren’t physical bitcoins like the pound coin, for example. However, all transactions are verified by an enormous amount of computing power.
Let me try and explain some more…
Understanding Bitcoin and The Blockchain
Bitcoins are generated by utilising an open-source computer program to solve an incredibly complex mathematical problem. Solving this problem is known as Bitcoin mining.
Each bitcoin has a specific identity comprised of long strings of letters and numbers that generate each Bitcoin’s public address and private key.
Public address — Think of the public address like your bank account number and sort code.
Private Key — This is your card’s pin number and is secret and used only to authorize bitcoin transactions.
Through this address and key method, bitcoin holds a value, as well as, a method for transferring that value.
All bitcoin transactions are recorded in a public ledger known as the blockchain. The blockchain is essentially a database, a collection of information stored electronically on a computer. The blockchain collects information together in groups, known as blocks, and blocks have certain storage capacity, such that when filled, they form to another block, creating the blockchain.¹
Using the blockchain approach, all transactions can be searched in the irreversible timeline of data in a decentralized nature.
Why Are Bitcoins The Future?
Bitcoins have all the desirable properties of a money-like good. They are portable, durable, divisible, recognisable, fungible, scare and difficult to counterfeit due to the blockchain.
Decentralization
As we’ve now learned, bitcoins are generated through mining: a system that rewards those who process transactions on the blockchain. This blockchain then stores every bitcoin transaction ever made. The blockchain consists of thousands of computers, scattered all over the globe operated by individuals or small groups of people.
Due to the blockchain, if one block has an error in its data, it can use the thousands of other blocks to cross-reference and correct itself. Therefore, the history of every transaction is irreversible.
This system helps to establish an exact and transparent order of events. For Bitcoin, this information is a list of transactions, but it also is possible for a blockchain to hold a variety of information like legal contracts, state identifications, or a company’s product inventory.²
Bitcoin is a trustless currency — that is, bitcoin’s are not tied to any nation, government, or body. Trust failures spark systemic collapse, inequality and monopoly lock-in.
Driving Down The Dollar
The United States has been printing money freely for years, and now, due to COVID-19 pandemic, they’ve been doing so more than ever. Of course, a stimulus package was warranted, however, this increase in money will greatly diminish the dollar’s value long-term.
Bitcoin is anti-inflationary by design. There is always a set amount of bitcoins in circulation — capped at a maximum of 21 million. Therefore, bitcoin’s value will increase based on standard supply and demand economic ideology.
Fiat currencies continue to show their mortality, for example, in Greece, Zimbabwe, and Argentina. The U.S. dollar is on the similar path. It is a mathematical and economic certainty.
Built-In Scarcity
Most fiat currencies are controlled by their governments, i.e. they can print more at will, and often do — just this year, the U.S. Federal Reserve created stimulus packages worth trillions of dollars.
Only 21 million bitcoins will ever be produced due to the halving process when mined. This will help support its long-term value as this scarcity provides the digital currency intrinsic value — similar to gold.
International Transaction and Lower Fees
For international transactions, purchasing and selling in Bitcoin eliminates the need to manage multiple currency accounts. All you need is a Bitcoin wallet to make payments anywhere in the world. These payments are fast, secure and confidential.
Cash flow risk is reduced because of fast settlement, and credit risk is eliminated since bitcoin payments require funds to be present in wallets at the time the payment is made.³
Conclusions
Bitcoin has huge potentials for becoming the future payment method of society. Through the use of the Blockchain as a decentralised record of each transaction, alongside the accuracy of the chain by removing almost all human involvement. Each transaction is secure as each must be authenticated by the blockchain network. Therefore, thousands of computers rush to confirm the details are correct and therefore adding the transaction block to the irreversible blockchain.
Cutting out the middleman allows for efficient transactions. Have you ever deposited a check on Friday and not had the fund available until Monday? Bitcoin and blockchain works 24/7 all year round. This is particularly useful for international trade with Citi Bank saying “Bitcoin could be the currency of choice”.
Lastly, with a built-in scarcity with a maximum bitcoin supply of 21 million, bitcoin will never fall victim to inflation issues that other fiat currencies face.
I hope you enjoyed this post. Please, feel free to add your thoughts in the comments!
-PocketPound
[1] https://venturebeat.com/2014/02/17/bitcoin-for-idiots-an-introductory-guide/
[2] https://www.investopedia.com/terms/b/blockchain.asp
[3] “How does Bitcoin work?,” Bitcoin.org, ; https://bitcoin.org/en/how-it-works
