Launched in 2009, Bitcoin was the first kind of asset known as cryptocurrency. Bitcoin eliminated the need for traditional money storages such as banks to make financial transactions, making money storage more manageable and efficient. Satoshi Nakamoto, the name being used for the pseudonymous inventor or inventors of the bitcoin, says, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Bitcoin is powered by a peer-to-peer trading rather than other forms of manual transactions. Ultimately, this creates a currency based on codes and computers as opposed to physical items like gold, paper money, or silver. However, many still do not understand bitcoin’s complexity – how does it really work and what makes it so great?
Each bitcoin is a computer file that can be stored in a digital wallet, iphone, or android; it is only available in a digital format in contrast to the outdated physical currencies still being used around the world. The following information is vital to thoroughly understand and grasp the hype around bitcoin. Firstly, a blockchain: bitcoin is powered by an open-source code called blockchain which creates a public ledger, or record-keeping system. Each transaction or arrangement is a block that is chained to the code of bitcoin, generating a permanent record of each transaction. More than 6,000 cryptocurrencies have been created on the back of bitcoin; blockchain is behind almost every single one.
Furthermore, bitcoin is a system of peer-to-peer trading: the people who trade are often referred to as bitcoin miners. Miners first start off trading with each other, then they individually complete the transactions. Miners are doing the work to verify the authenticity of bitcoin trading. Miners are rewarded in the form of bitcoins for their work as auditors. Similarly, in bitcoin, there is a system of public and private keys – these two work together to allow the owner of the bitcoin to initiate transactions and sign them off. The public key receives the fund, while the private key confirms transactions. While spending bitcoin, the present bitcoin owner presents his/her public key and a signature (different each time, but formed from the same private key) in a transaction to spend those bitcoins. This provides a proof of authorization to the buyers and spenders of the digital coin.
With every product come pros and cons; without identifying each of these extremes, bitcoin cannot be wholly explained. Each bitcoin being processed is recorded in a public log. However, buyers and sellers’ names are never revealed; this is referred to as the anonymity of bitcoin. Buyers being kept secret eliminates the risk of consumer information being stolen by others; some examples include identity theft and fraudulent purchases. While that keeps users’ privacy, this has come with consequences. When using bitcoin, people can buy or sell whatever they want without the product being traced back to them. This is why bitcoin has become the currency of choice for people buying drugs or doing other illegal activities on the web. With a cryptocurrency of this size, hacking can always be a concern. While people say that blockchain is safer than traditional electronic money transfers, bitcoin wallets have gained massive popularity by hackers. Time has shown many examples of this; for instance, in May 2019, more than $40 million in bitcoin was stolen by hackers. This proved that bitcoin was not a perfect currency with no flaws. Bitcoin has also proved its bipolarity and how unpredictable the price is. For example, the 2017 surge in bitcoin buyers was driven by speculators who decided to rush into this market. Quickly after, bitcoin’s price tumbled, people who bought the coin in 2017 had to wait until December 2020 to recover what they had invested.
However, there are many pros to bitcoin that some say would outweigh the disadvantages. Bitcoin has the potential for significant growth over a short period. Throughout last year and this year, the buyers have been able to foresee how fast the coin has increased in price and popularity. Investors predict that once bitcoin matures, a greater trust will follow; this will eventually increase bitcoin’s price massively. Jonathan Lev-Tov, a 10th Grade student, says, “Bitcoin is gaining more and more recognition each day; it is only a matter of time until bitcoins increase in price is exponential. Everyone is trying to get a hold of one of these coins because they are starting to have trust in the currency.” Jonathan makes a valid point that many may agree with.
Additionally, bitcoin has the ability to avoid old-fashioned banks and government-mediated transactions. After the Great Recession’s craziness, some investors came up with the idea of a decentralized currency, one that was outside the control of the government and banks. People are starting to realize how strong the power of a decentralized currency is.
Bitcoin – in a way – resembles stock trading; it has a high risk but a very high reward. It is incredibly speculative and turbulent to buy. To some, bitcoin has already impacted their lives in unthinkable ways. This year, bitcoin’s price has been booming, and many predict that it will continue to rise. Alan Wainer, an 11th-grade student, says, “Bitcoin has shown its power in this last year and a half. It has shown how fast it can get people to clinch on to the hype of it. But will it continue to go up? This is only a question of time.” Cryptocurrency is the definition of money in the future, and people will have to adapt to it.