2017 has been dubbed as the ‘Year of Cryptocurrencies’ when the mother cryptocurrency, Bitcoin, reached its peak as much as $20, 000.00 per coin across different exchanges around the globe according to Coinmarketcap.com. Investors from the United States and especially Asia jumped and even big whales such as financial institutions, recognized exchanges such as the Chicago Exchange, and other institutions focused on trading and investing in cryptocurrencies jumped into the phenomenal high rise waves of the ‘crypto craze’. Therefore, altcoins (coins other than Bitcoin) such as Ethereum, Bitcoin Cash, Ripple, and Stellar among other coins also enjoyed big gains.
These wild speculations from the investors were intensified by different factors including the uncompleted projects or yet-to-be-introduced products of these companies by advertising it to the public as very promising and enticing the public to invest before it is too late and endorsements from different celebrities such as Steven Seagal. It is also accompanied by weak psychology of retail investors, that is, (FOMO) Fear-of-Missing-Out driving them to put their hard earned money without realizing that it is the price peak for that certain coin.
Thereby, this ‘new money’ gained the attention of different government. Some accepted it with joy, some with hesitation, and some with outright negativity. China, for example, has vowed to crack down coin exchanges and to ban initial coin offerings (ICOs) in the country and is on track to provide regulations in the new found industry. The United States, Europe, some Asian countries, and others were also eyeing for future regulations as a result of the G20 Summit happened earlier this year.
UNDERSTANDING BITCOIN
Throughout the history, the use of fiat currencies in the form of US dollars, UK pound, and Philippine Peso has transformed the lives of ordinary persons to businessmen and business women to corporate persons (private and public). They have provided greater convenience in settling personal and business transactions, portability, and security through banks (safe keeping) locally and on international scale.
However, many problems arising from their use remain unsolved. The cost of every single financial transaction in the worldwide banking system daily costs much to an average sender or user of the system; some costs included hefty bank service charges, other third party fees such as of the government, and economic costs such as the time involved for it to be confirmed which usually takes at least three business days. Some major problems with the current system include unbanked isolated parts of the world, frequent cyberattacks on different accounts including hackings of operations of institutions compromising or paralyzing their visions and missions, and the duplication of efforts of involved parties such as keeping records.
These limitations will even be escalated and could deteriorate the whole financial system as volume of transactions rises with the fast and dynamic changes in the internet environment; technology is evolving rapidly, e-commerce and online purchases unfailingly gains traction among consumers, and highly intelligent innovations propelling us to another decade or even a century causing the size of trades to explode. Thus, it resulted to the emergence of Bitcoin.
On October 31, 2008, hundreds of developers and cryptographers received an email coming from a mysterious Satoshi Nakamoto (could be a group of persons) stating that he developed a payment system which does not require a third party such as the government with strict regulations or banks with fat fees. Then, the transaction will be untraceable and off the records from any book of accounts. We can initially conclude then that it provides some major advantages.
We can then execute transactions by using private keys to authenticate the transaction. No party will be able to know whom you have transacted and what the details of the transaction are. Such creates a cost-effective system. Another feature, is safety and security because once a bitcoin transaction was confirmed, it will be final and irreversible. This feature could also mean that confirmation of the transaction will be effective because it only requires one distributed ledger which automatically updates real time.
THE UNDERLYING TECHNOLOGY
For every innovation, there should be a fundamental basis or foundations such as technology to exist. Bitcoin has one, it is called ‘blockchain technology’. Marc Andreessen called Blockchain “one of the most important technologies since the advent of the Internet.”
It provides an un-alterable shared ledger for Bitcoin transactions for almost any type of asset such as tangible, intangible, and digital. The technology can be used in all industries such as healthcare where hospital institutions can store insurmountable amount of medical records and safe from any ‘acts of God’ and in the financial sector where it can settle transactions in a few minutes instead of three business days and this will greatly reduce replication efforts of storing data since we have one digital distributed ledger for all parties involved; thus, reducing costs and amplifying the ‘comprehensive net income’.
The value of cryptocurrency lies with the technology behind its creation. Its one of the greatest discoveries known to man that could change our lives.
