1st eCoin4dummies Guide: What is Bitcoin?
Are you interested with Bitcoin but you are a bit skeptic about it because you have limited knowledge on how it goes? Let us show you the basics of Bitcoin and why it was tagged as the best and first digital currency.
What you will learn in this guide:
- Money: Its History and Associated Problems with Centralization
- The Rise of Fiat
- The Double Spend Problem
- The Problems of a Centralized Money System
- Bitcoin: The Decentralized Solution to Global Commerce
- How Does Bitcoin Compare with Banks?
- Who Accepts Bitcoin
Money: Its History and Associated Problems with Centralization
Looking at its importance in contemporary life, the invention of money is arguably as monumental for humanity as the wheel.
Perhaps not as dramatic development, but you get the gist.
Money is definitely synonymous with value, everything and everyone, dare I say, can be valued monetarily. This consensus attachment of value certainly means it is the default means of exchange in ordinary commerce.
It goes without saying that the history of money is varied and interesting. Back from the Bronze Age where humans used barter trade, to the era of precious metals like gold and silver, the society has always needed a way to conduct meaningful trade.
Notably, Gold remained relevant for its universal value. Besides, it can be stored for future redeemable value. This means that ordinary trust in a commodity. However, this system could only last for so long.
As convenient as gold was, it was still cumbersome to carry in large quantities. Besides, there was only so much gold to go around and there came about pieces of paper that connoted the amount of gold you had stored. This gold backed currency remained the status quo well into the 20th century. Money is practical and divisible in contrast to gold. This meant that commerce was a lot easier.
The Rise Of Fiat
As time went by governments did away with the gold standard for macroeconomic efficiency. This means that people continued to trade using currency entirely based on a government promise. By the turn of the 21st century, pretty much all major economies switched to this fiat system. This meant that the currency is not backed using any solid assets but rather central bank regulation. The legal tender by government order is the status quo at the moment.
Problems with fiat money
- Centralization- The government has absolute control in a fiat system.
- Unlimited quantity since the government can print currency at will. This can result in hyperinflation if mismanaged.
The Double Spend Problem
Fiat money transitioned to digital money with the rise of the computer age. Instead of a central authority printing tons of money, the task became keeping track of who owns what. This means that the concept of money now extends to digits in a computer to connote ownership of money.
The problem with this is that, if a file connotes ownership, what’s to prevent the central authority from creating multiple similar files? This is what is called a double spend. This means that the absolute trust we place on the centralized ledger is not foolproof. The centralized ledger does great for the most part in curbing double spend but we can appreciate the need for each unit of currency having a unique signature.
The Problems of a Centralized Money System
- Corruption– Lord Acton aptly stated: power corrupts, absolute power corrupts absolutely. Banks have seemingly unlimited power over global commerce. The effect of this is issues like the 2008 financial meltdown that wiped out trillions of dollars from the global economy.
- Mismanagement– This is because, at certain times, the interests of the centralized agencies don’t conform to that of the rest of society. The 2008 crisis necessitated bailing out banks which placed a lot of burden on taxpayers.
- Control-At the end of the day, the government simply has too much control over the individual monetary state of citizens. This level of control is inherently a disadvantage.
In conclusion, these problems led to the rise of alternatives in the wake of the financial crises. Notably, Bitcoin, which happens to be the subject of our study, is the most successful of these.
Bitcoin: The decentralized solution to global commerce
What is Bitcoin?
When Satoshi Nakamoto released the Bitcoin whitepaper in 2008, there was a little buzz in tech and financial circles. A little over a decade later, it is fair to say that Bitcoin has taken the world by a storm; or at least made everyone sit up and take notice.
What is Bitcoin though? This is a digital decentralized currency that can solve the problems of double spend and excessive control. Bitcoin utilizes private keys for a unique identity sequence that only the owner knows.
Bitcoin is possible because of blockchain technology. The blockchain is essentially a transparent ledger that records all transactions on the network. What is unique is that the technology does not need centralized management as compared to centralized banking.
The Bitcoin blockchain relies on the computing power of the computers in the network to operate smoothly. New Bitcoin comes about through mining which utilizes advanced computer equipment. The computers solve complex algorithms to complete transactions and add new blocks to the blockchain. Consequently, the miner gets extra Bitcoin for their efforts. Let’s look at the structural differences between Bitcoin and mainstream banking.
How does Bitcoin compare with banks?
Banks today are certainly different on account of digital banking. This is because banks, for the most part, manage a ledger digitally with the account records of individual customers. That said, the ledger is not transparent because the bank micromanages the ledger. This is definitely one distinct difference between Bitcoin and centralized banking.
Using Bitcoin, you can see the blockchain transactions in real time. Accordingly, you have a view of pseudonymous transactions. Everything is open and transparent which is something you can’t quite say of centralized banking.
Nevertheless, you can still withdraw cash using a bank ATM. For Bitcoin, this is not possible because there are no physical bitcoins in existence as it is a digital currency. The records of transactions are on the blockchain and once you own Bitcoins, you can transfer the amount to a digital wallet. The wallet stores the bitcoin private keys that are a unique identifier for units of Bitcoin.
Bitcoin has the following advantages:
Ø Independence from centralized control meaning a greater deal of control over your money. This is definitely the main advantage of Bitcoin. Centralized currencies like the dollar are susceptible to artificial inflation. You may argue as to the sustainability of this system but it is definitely an attraction for users.
Ø Bitcoin cuts of middlemen in finance making increasing the power of coin holders.
Ø The digital nature of the currency makes it ultra-convenient to handle.
Ø Bitcoin can create opportunities for populations affected by issues like hyperinflation such as Venezuela.
Who Accepts Bitcoin?
The world is slowly but surely embracing the digital future. When Bitcoin was a fledgling innovation about a decade ago, even its most enthusiastic proponents could not foresee such developments.
Bitcoin is fast permeating every facet of commerce in the global order. Merchants in all kinds of industries accept Bitcoin and this makes it a versatile tool. There are Bitcoin debit cards that allow you to access services globally at the swipe of a card.
There are a number of merchants globally who accept Bitcoin. Be they large merchant or ordinary retailers, they are a unique and pioneering few who embrace technology. Bitcoin may seem like a benign undercurrent in the world of finance but the combined purchasing power of this community is still remarkable. It goes without saying that the motive for some of them may be profit but the effect is still same. In some places, you can even pay your parking fee using Bitcoin!
The following are some top merchants in respective industries who accept Bitcoin:
In the automotive industry, Tesla is the most notable entity that accepts Bitcoin. This company, which is a brainchild of Elon Musk is always distinctive for embracing the latest tech. Others include 4×4 Direct, a notable supplier of supplies and accessories, auto accessory center and bearings international which is based in South Africa.
Gadget and tech companies
Microsoft and Dell are two giants of industry who have taken the positive step on embracing Bitcoin. Others include MEGA which provides cloud services and Reddit, an important platform for Bitcoin promotion.
Real estate markets like Re/Max, BitcoinProps and Propy offer you the chance to own a home using Bitcoin! There are other related services like gardening also available on Delectable Garden and Mary Jane's Nutrients. Gear forms is a notable furniture provider that accepts Bitcoin.
Fashion stores include Go Wear, Fancy.com, Normal Porter jeans and the Canada based All things luxury. There is no excuse not to look dapper when you own a decent amount of Bitcoin.
In the food and restaurants industry, Subway, Pizza for coins and Japan based Pink cow are notable entities. The best way to access such services is using a Bitcoin debit card which makes life easier.
Nonetheless, Bitcoin still has some way to go in attaining global acceptance and use. It goes without saying that the proportion of people who use Bitcoin around the world is still a tiny bit of global finance. It will take a decent amount of time and development of the technical aspects of cryptocurrency to achieve all that fiat currency offers and more. Only then can the march to a decentralized future be truly on.
Congratulations! You now know more about Bitcoin than 99% of people around the world. This is a wonderful innovation with unlimited potential in the near and distant future. If the events of the past ten years are to go by, the disruptive power of such a technology should not be taken for granted. Bitcoin has had a rough few months after the highs of early 2018.
Some cynics have been quick to point out that without centralized regulation and issue, bitcoin can never be mainstream. However, the flipside of that is that it is difficult to stop an idea whose time has come. Accordingly, Bitcoin will have to show its resilience and relevance to endure the challenges. The progress of this currency will be fascinating to watch.