As an avid technologist, my reading drove me into a pervasive technology. Driving a whole new generation of trade lies a viral idea that has been working its way around Europe and the Americas. What made me grab my pen was learning that it had reached the shores of India. I will try to skim the waters of Bitcoin with this article.
Cryptocurrencies are e-currencies, which can be transferred electronically, a similar way to which PayPal works. PayPal is a centralized system, with the final authority resting with PayPal, whereas Bitcoin is decentralized.
Being decentralized means that no government controls Bitcoin. It is a completely worldwide -independent currency, driven by the merchants adopting it. In addition, there are a lot of them across the world today. Being a highly technical subject, this has evaded the eyes of many, but is a dominant force to be reckoned with.
Currency Exchanges have been set up exclusively to convert cryptocurrencies to government-regulated cash. Currently valued at US$11.18 (Source: Mt Gox – 8 September 2012), Bitcoin has seen a peak of US$30 and a plunge of US$2. It has been stable for a while now staying between UD$9 and US$12.
The driving force of this stability has been a strong market for legal as well as illegal trade. While I do not wish to cover that part of the puzzle in this article, demand for anonymous trade has pushed this currency to be the only accepted form of payment in the low-supply high-demand markets.
While our current forms of currencies are backed by mining gold and gold reserves (Edit: 21 Sep 2012: “This is not correct. Modern government currencies have absolutely no backing or link to gold whatsoever. The US dollar, for example, has not been connected to gold since 1971. Government money is thus already digital currency – banks do not store gold to back your account, it is simply numbers in a database”. Commented Erik Vonhoos, Head of Marketting & Communications, Bitinstant), Bitcoin generates its value by building on a complicated mathematical equation. This equation requires the combined effort of the Bitcoin community to mine into existence. This consumes too much electricity, and draws its computing power from the systems mining for Bitcoins.
It is the digital equivalent of mining for gold. It is rare, precious and can be traded for real items sold in real stores across the world.
Still in its infancy, Bitcoin has been subject to numerous hacks(Edit: 21st Sep 2012, “This is incorrect. Bitcoin itself has not been hacked. However, some websites which use Bitcoin (such as some of the exchanges) have been hacked. It’s an important distinction.” Commented Erik Vonhees, the Marketting & Communications Head of Bitinstant), and being a truly anonymous currency, the culprit cannot easily be traced. Despite these hacks and flaws, Bitcoin has never stopped growing. There are a lot of people who want to buy things under the radar and are willing to pay top dollar to get it. In addition, as long as that exists, Bitcoin will continue to rise in stature.
So, what does all this lead to? Bitcoin is an open-source platform. Absolutely anything can be built on top of it, and a service fee can be added.
While it is said to be truly anonymous, it can be overcome through technology to ensure that any entity only provides Bitcoin services within the regulations of the law. Digital Signage and Encrypted Keys are a few ways by which Bitcoin can be monetized by the banking industry.
Early adopters always win, and India is seeing a rising trend of people willing to start something new. Bitcoin came into existence in January 2009 and with a short span of 3 years, without much fanfare, has over US$100m in circulation today (Source: Mt Gox – 8 September 2012).