It was almost a decade ago when talks about Bitcoin and blockchain technology were a rare topic of discussion, amongst only a small group of people. Nowadays, bitcoin and other types of cryptocurrencies have become a commonplace that not a day goes by that we don’t hear news about them.
For the uninitiated, Bitcoin is a type of digital currency created in 2008 by an anonymous person known only by its alias, Satoshi Nakamoto. It runs on a decentralized system–meaning payments are exchanged between users without passing through a middle man or a central authority like banks or payment gateways (e.g. PayPal, DragonPay) They are not physically tangible like SGD or USD. They are fundamentally produced, held and exchanged by computers worldwide via a free software.
Bitcoin transactions are verified through network nodes that use cryptography and records transactions in a public ledger called blockchain. It can be exchanged with other currencies or used to purchase products or services digitally. According to a research from the University of Cambridge, there are more than 5.8 million unique users with cryptocurrency wallet.
To buy and sell bitcoins using different currencies, people can use bitcoin exchanges such as Bitfinex and Bitstamp. While buying and selling bitcoins is relatively easy and convenient, security is a major concern. In 2016, bitcoins with millions of dollars worth were hacked and stolen from Bitfinex.
Bitcoins are stored in a “digital wallet”, either on a user’s computer or any cloud platform. It is similar to having a virtual bank account, only this is not insured or guaranteed by any country’s central banks.
Bitcoin mining is the process of keeping records of bitcoin transactions using computer power that produces a ledger. Bitcoin miners compete to mine bitcoins to solve this complex process which is how bitcoins came about. They are rewarded with a transaction fee and newly bitcoins that this process created.
Despite all the hype and speculations surrounding bitcoin, many things are still left unknown, especially on what would happen when all cryptocurrencies are mined in the future.
One thing unique about bitcoin is that it is designed in a way that its creation (or mining) decreases over time with an ultimate production limit. Over time, bitcoin reward for mining is cut in half, until such time that the final mined Bitcoins hit 21 million.
When this time comes, bitcoin miners are awarded only with the transaction fees, sans the award in Bitcoins for the process of mining. This usher in some interesting question on what will happen then to the value of Bitcoin and the future of the Bitcoin mining process.
People are also split on their opinions. Some people think it’s a good investment alternative while others think it will go bust one day. For how long will this bitcoin fever will remain profitable, no one really knows.
Warren Buffet, Berkshire Hathaway’s CEO and chairman, said in 2014: “Stay away from it. It’s a mirage, basically”. He added, “the idea that it has some huge intrinsic value is just a joke in my view.”
Another well-known bitcoin critic, Lloyd Blankfein, Goldman Sachs CEO, stated that “something that moves 20% does not feel like a currency. It is a vehicle to perpetrate fraud.”
Some other high-profile investors are not as dismissive as Buffet and Blankfein. James Gorman, Chief Executive of Morgan Stanley thinks that cryptocurrency is more than just a fad. “I haven’t invested in it. I’ve talked to a lot of people who have. It’s obviously highly speculative but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.”
What’s Next for Bitcoin?
Many people think that bitcoin is just another short-lived trend that will eventually die a natural death at some point in time or transform into something unique with unprecedented potential. It’s undeniable that investing in digital currencies can both be terrifying and exhilarating. Since we don’t really know what the future holds, the possibility of a bitcoin bubble should be enough to make us more cautious about it.
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