Blockchain, Bitcoin and cryptocurrency….. all these terms are the talk of the town nowadays. There are lots of controversies as well about the future of digital currencies and bitcoin. Some predict that the future of Bitcoin technology is very uncertain. Some have predicted that Bitcoin is the next big global digital currency. It is expected to bring revolution in the financial system, due to its technology – Blockchains. On the other hand, there are various limitations that could ultimately lead to its downfall. So, there are lots of questions about the global challenges and opportunities of Bitcoin and cryptocurrency. Let’s begin with some quick definitions.
Bitcoin and cryptocurrency is a completely pure digital phenomenon. It is totally virtual coin designed to be ‘self-contained’ for its value, without any need for any intermediaries or banks to store or move the money. Bitcoin is in fact software with a set of processes and protocols. A wallet is a small personal database that is stored on a tablet/Smartphone or computer drive. Bitcoin is traded from one personal ‘wallet’ to another.
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cryptography
Bitcoin is the most successful of numerous attempts to generate virtual money with the use of cryptography.
Cryptography is the science of making and breaking codes. A Bitcoin and cryptocurrency is a medium of digital exchange that makes use of encryption techniques to control the generation of monetary units and to confirm the fund transfer. Bitcoin is the best-known and simplest implementations of cryptocurrency in use today and Blockchain is the technology that enables the existence of cryptocurrency.
Blockchain includes a single chain of distinct blocks of information, which are arranged in chronological order. Information can be any string of 0s and 1s – bond trades, emails, land titles, contracts. Due to this versatility, it is grabbing attention of private corporations and governments. In bitcoin, the blockchain information is mostly transactions. It actually acts a ledger to keep track of the records and balances for all users. It updates as money changes hands.
Mining is the process that maintains this public ledger. Bitcoin currency is completely unregulated and decentralized. No intermediary/national bank/ national mint is involved. The currency itself is un-collateraled and self-contained. A huge network of people, known as miners contributes their personal computers to the Bitcoin network. They contribute as a group of ledger keepers. Bitcoin transactions are audited as well as recorded on the blockchain by miners. They are remunerated for their accounting work in the form of new bitcoins for their weekly contribution to the network.
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Types of bitcoin users
In the Bitcoin application, two types of users are allowed, referred to as miners and participants. Participants are people who interested in using Bitcoin as a currency. They apply the Bitcoin software to generate a “wallet” which can be used to receive and send Bitcoins to other participants. A message is sent to the network for transaction broadcasting that a participant has sent a particular number of Bitcoins to another participant. Trough mining process, the miner cements the transactions in time.It is like solving a difficult mathematical puzzle to generate blocks. The validity of the transaction is confirmed by its connection to the previous piece in the block chain: proof of transaction details.
Due to this, it is really difficult for the duplicate or fraud transaction. In case an attempt is made to add a fraudulent transaction, the answer to the puzzle is different from the correct answer. As the subsequent puzzle piece is connected only to the actual confirmed transaction; only the true transaction will be associated with the subsequent puzzle piece. Thus, if anyone tries to add a new block in the chain, miners can quickly identify the new block is fake by comparing the new block to their own copy of the blockchain.
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Bitcoin evolution, challenges and prospects
Bitcoin stands out in payment methods, as it is decentralized and uncontrolled. Furthermore, it is simpler, faster and safer. The concept is that rather than having just a single institution confirming the validity of the transaction, any user on the network can verify Bitcoins payments.
Due to this easy payment verification, the power imbalance, which at present exists between financial institutions and users, is eliminated. Bitcoins transactions are safer, as they are stored in a permanent record. Moreover, as all the information is accessible for everyone, it is more transparent. Many banks and businesses have already started incorporating Bitcoin and cryptocurrency technology into their system.
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Challenges:
A lack of legislation regulating digital currencies and user protection is a great challenge. When technical security is considered, bitcoin is superior to any other known technology. Educating people about protecting personal data is of core importance here. However, insurance protection and clear legislation needs to be put in place.
Considering the downfall and cases of collapse and people losing their money, there is need of serious actors in the bitcoin world. Though the bitcoin protocol was not at all affected and not a single bitcoin disappeared, it is essential to be keen about this.
The volatility of prices also puts a question mark on the potential of bitcoins as a currency.
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- Bitcoin being a technically an open community, has disputes among members as which way it should go. Furthermore, the concept of not having a centralized authority is the base and having a centralized authority would remarkably change the plan.
- Bitcoin has a small user base and hence, are very volatile. The stability is expected to increase with its popularity.
- There are lots of doubts about this cryptocurrency like where we can use bitcoin.
- The use and reputation of bitcoins to purchase illegal drugs and in the black market, is a big challenge.
- There is a lot of resistance from governments, making it difficult for the Bitcoin community to grow.
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Bitcoins- prospects:
Though it is hard to say about the future of Bitcoin and cryptocurrency exactly, Bitcoin for eCommerce seems to gain prominence gradually. Bitcoin is still under active development. It is likely to evolve and change according to the changing necessities. Time will tell us what direction it will take. Let’s wait and watch if it revolutionizes financial transactions by overcoming its challenges, or faces downfall just being not able to tackle the financial situations.
