As more and more transactions move from offline to online, Bitcoin is set to dominate and be the number one currency used in completing these transactions.
The internet can sometimes be thought as a goody bag bearing lots of goods. It has aided the development of tools and systems which has improved human lives in diverse ways and has also created several millionaires and billionaires along the way. In the early days, before the advent of cryptocurrencies, transactions on the internet was largely dominated by fiat currencies such as dollars, pounds, euro etc. A currency is primarily a store of value which can be used for goods and services.
However, these fiat currencies have certain limitations:
- They are controlled by a central issuing body/ institution, usually the central (government) bank of the respective countries; therefore, it is subject to influence and manipulation.
- Variations in prices of one currency against other currencies and quickly appreciate or deplete the value stored in it. This presents a big challenge for cross border transactions.
- These and other challenges have led to the development of cryptocurrencies.
What is a Cryptocurrency?
Crypto currencies can be thought of as the internet inventing its own currency. Just the same way the internet was able to decentralize cross border communication; it also seeks to decentralize cross border transactions through the use of crypto currencies.
A cryptocurrency is a digital currency which stores value through mathematics by solving very complex algorithms. A crypto currency is not the electronic version of fiat currencies rather a cryptocurrency is a currency on its own. There are over 1,000 crypto currencies; however, Bitcoin is the leader of the pack of all cryptocurrencies. First introduced in 2009, it was developed based on the blockchain technology. Bitcoin facilitates cross border transactions without any variation in value or government control.
Bitcoin and blockchain technology in general, has certain key features which guarantee its freedom from any government or central control. Firstly, it uses a distributed computing processing and not the client-server computing processing. What this means is that data editing is not done on only one computer (or mirror computers) as with the case of client-server systems but rather a consensus must be reached across millions of computers running the same version of Bitcoin before a data editing can take place.
In other words, Bitcoin does not have a single server or a set of servers which when shutdown can affect the entire network rather there are millions of computers running the Bitcoin program and each of them is an independent Bitcoin server on its own. Hence, a consensus of these independent Bitcoin servers (which is basically every computer running Bitcoin) must be reached before a transaction must be successful. This goes a long way in eliminating fraudulent practices and preventing abuses.
Bitcoin has brought democracy to money. It is truly a currency for the people, by the people and for the people. Secondly, the Bitcoin blockchain relies on cryptographic hash function, that is, public and private key encryption, which ensures transparency by making public every transaction on the network while at the same time maintaining privacy by ensuring that only individual with certain permission can edit the parts of the blockchain.
The Bitcoin Value
As more and more businesses and people accept to use Bitcoin for the purchases of goods and services, some others view Bitcoin as an investment product. This is given credence by the fact that Bitcoin is finite. There are only 21 million bitcoins that can ever be mined. This means that as more businesses accept bitcoins, the demand will be higher than the supply and hence the price will always rise. The Bitcoin value in the last five years has proven this to be true.