Sunday, 13 August 2017

What is Bitcoin? - Part 1

First of All, What is Bitcoin?

Bitcoin is a decentralized virtual currency.

If that doesn’t make any sense to you, it basically means that Bitcoin being a kind of financial asset generated by a bunch of codes of which humans give value to, without being regulated by centralized parties such as banks and governments.

Yes. In short, there is no rock solid Bitcoin for you to hold on your hand. Everything is digitalized and virtual.

Then, How does Bitcoin Comes About to What it is Today?

Introduced in 2009, Bitcoin was regarded as the answer to many factors that had led the fall of Lehman Brothers and eventually led to the Global Financial Crisis. While fiat money (eg. USD, MYR) could be increased via money printing, crypto-currencies such as Bitcoin has a capped production limit of 21 million units by the year 2140.

A capped production simply means that Bitcoin has a solid store of value compared to fiat money, which can be increased in volume by money-printing which leads to inflation. In a way, this is pretty similar to commodity such as gold, as gold has a finite amount in this earth.

To date, the official reaction of the global community towards Bitcoin has been mixed. In April 2017, Japan’s legislation has made bitcoin and several virtual currencies legal currency and consider these currencies as an asset and is taxable. However, the Indian government has stated that the use of Bitcoin as illegal, as it could result in the breach of anti-money laundering law of the country.




Alright, Who uses Bitcoin?

Businesses use Bitcoin to do transaction as it saves time and cost without going through intermediaries such as banks. Visa has also come out with Bitcoin debit card to allow consumers to spend using their Bitcoin.

On the other hand, Bitcoin has also been used in online gambling, and more recently, WannaCry ransomware attack which require victims to pay using Bitcoin.

So How does Bitcoin Work?

The key technology behind Bitcoin is called Blockchain, where it optimizes business procedures by allowing businesses to share data in a transparent and secure way among the enterprise and execute commands and orders through Blockchain programming via distributed and decentralized ledger.

Wait…What?

Don’t worry, it took me quite some time to get the concept behind Blockchain as well.

Simply put, a money transfer between two parties would need to go through the validation procedures executed by an intermediary party - the banks. However, through Blockchain technology, a transfer of money by two parties would not need to go through validation by intermediary, but instead be validated by anonymous users in the Blockchain network.

Hence, Blockchain technology: (1) Saves transaction cost and time compared to conventional banking system. (2) Blockchain's nature of decentralized record-keeping makes it more prone to hacking threats compared to the centralized record keeping system by conventional banks.




Verdict: Thank you for reading, and I can't wait to publish 'What is Bitcoin - Part 2' which will cover more interesting topics such as Where to Buy Bitcoin, Investment in Crypto-currencies and many more! Personally, I believe that crypto-currencies are more than just a tool for speculation, but the fundamentals behind it would be able to revolutionize our daily life in near future. Do tell me what you wish to know about Bitcoin and I'll do my best to cover them in Part 2!