The introduction of Bitcoin in 2009 transformed everything we know about money, and global payments. More than 13 years later, Bitcoin continues to power a decentralized network of person-to-person digital payment system, using cryptography as its core technology. In this presentation, I will explore some great possibilities that Bitcoin has brought to the world of money and international payments. We will also look at other applications of Bitcoin beyond just payments.
Here is a sketchy outline of what we will cover:
- A brief history of Bitcoin
- Core working principles of a Bitcoin network
- Why Bitcoin is a revolution in digital payment
- Bitcoin Challenges
Now we can take a deeper look into the above elements.4
A brief history of Bitcoin
Bitcoin came into existence fully in 2009 and was created by an individual or team whose code name is Satoshi Nakamoto. The technology behind Bitcoin known as blockchain technology is a digital ledger that stores and distributes data through a decentralized global network of computers. Data that is stored through this blockchain system is encoded through cryptography, allowing it to be unique and easily identifiable. Each data on the bitcoin network is considered a block, and contains cryptographic keys that links it to other data blocks, essentially forming a chain of blocks, or simply called a blockchain .
The blockchain network is maintained, secured and transactions are validated by a group of people often referred to as miners. When a data block is sent into the blockchain , miners have to unlock the cryptographic code contained in the data block. Once the code is successfully solved, the data is added to the blockchain and the miner receives some Bitcoin as an incentive to continue validating data blocks.
Bitcoin and blockchain technology continues to grow stronger after more than a decade of revolutionizing digital payments. Beyond just a global payment system, Bitcoin and blockchain technology has transformed entire industries today as a secure and public ledger for storing data and digital values. Because data stored in the blockchain is immutable, Bitcoin and blockchain technology now has relevance in industries such as health, education, insurance, agriculture and many other sectors.
Core working principles of a Bitcoin network
The core features or operating principles of Bitcoin could be summarized in these three words below:
- Decentralization: Bitcoin networks does not have a central point of control, there is no main node. All transactions are spread through the computer networks validating them. If one node is not functioning, it does not in any way affect the overall network because other nodes will do the work.
Being decentralized removes the need for a middleman as we have them in our banking systems. The central banks make all the laws that govern each financial system and implements those laws. Bitcoin networks are unlike that. Bitcoin networks are managed by the community, making it fully resistant to censorship. Since no one person can manipulate the network, it is considered fully decentralized.
P-2-P: Closely related to being decentralized, is the ability to send payments over any Bitcoin network directly to the recipient. Because there is no single central point of control, Bitcoin networks enable person to person global transactions. As such, it has revolutionized global payments, as there are no intermediaries like the banks through which all transactions must pass through.
Cryptography: Data blocks are encoded with some secret keys combination, which must be decoded by miners in order to validate a transaction and add it to the blockchain . These secret codes or key combinations is known as cryptography. They play a vital role in the Bitcoin network. For example, Bitcoin networks maintain anonymity of transactions through cryptography. The codes are secret and can only be unlocked by miners. It also enhances the security of Bitcoin transactions since an untrained eye cannot crack the codes.
Why Bitcoin is a revolution in digital payments
Bitcoin and blockchain technology has brought a revolution in our money is kept, moved and transacted. It has brought a whole world of opportunities previously unknown to the whole wild world. Below are some positive changes that bitcoin introduced to the whole world of finance and digital payments:
- Financial inclusivity: Bitcoin has made it possible for everyone to be able to make payments and other financial transactions no matter who they are, where they live or their economic or educational background. A large population of the world is unbanked. Reasons vary from living in rural areas where financial services are limited, to being unable to afford financial service like to maintain a bank account.
Everyone can own a bitcoin wallet, and everyone can send Bitcoin over the blockchain network. Bitcoin has opened the way for equal and free access to essential financial opportunities. With or without formal education, huge bank account, or other things that put people off the limits of financial products, everyone is welcome to the Bitcoin network.
- Financial Autonomy: Bitcoin has removed the need for an intermediary - for example a bank - to manage our digital assets. The challenges of not being fully in control of digital assets are many and obvious. Once a user creates a Bitcoin wallet, they stay 100% fully in control of their assets. Unlike a bank where the institution needs to approve any transactions before they happen, Bitcoin transactions are initiated by the owner of the wallet and they complete transactions in seconds.
Bitcoin gives power to the owner of the funds. As such, they are in charge of all decision-making with regards to their digital assets. Financial autonomy is only possible because of the decentralized nature of Bitcoin. The millions of users across the world that perform Bitcoin transactions already enjoy the freedom and autonomy only made possible by Bitcoin.
Fast Transactions: In terms of speed, Bitcoin transactions are light-years faster than all traditional payment channels you could think of. The bitcoin network can process 4-7 transactions per second. Some banks in my area to 5 working days to reverse error debit transactions. The difference is very clear. Sending money to other users across the globe happen in a matter of seconds. This is only possible through the millions of nodes that process Bitcoin transactions in a decentralized manner. So when it comes to speed, Bitcoin is the ultimate.
Low network fees: Bitcoin network fees are small compared to traditional financial systems. The network fees are used to reward miners that operate nodes on the Bitcoin network. With millions of transactions processed per year, the Bitcoin network does not make high network fees for users. This low network fee continues to attract more people to the Bitcoin network.
Borderless payment gateway: Bitcoin payments are global and happen peer-to-peer. Before 2009, sending payments across borders is not just slow, but expensive. Bitcoin has brought blockchain technology which has made it possible to send payments to users from across the globe in a matter of seconds. No need for a middleman, no need to fill forms and no heavy charges from the banks. Global payment is perhaps the biggest value Bitcoin has brought to our financial system.
Bitcoin Challenges
Just like every other emerging technology, Bitcoin is not without its challenges. Why a lot of hallmark achievements have been recorded in the finance sector, the following are known challenges of Bitcoin:
Volatility: The price of Bitcoin as a cryptocurrency is never stable. It can go up or down in a matter of seconds. Hence, many investors cannot trust Bitcoin as a proper store of value. The erratic movement of Bitcoin price in the market puts many user off. Some even fail to acknowledge it as a proper currency because its value is completely volatile.
Scalability:Bitcoin networks tend to slow down and take more time to complete transactions when many people are on the network. The scalability issue is a major concern which has prevented bitcoin from being accepted as a mainstream payment gateway. What will happen if there are 1 million transactions queued up in 1 second. Bitcoin networks have not passed this test till now.
Environmental impact: Mining Bitcoin requires huge energy units and massive computer resources. Because of the large energy consumption, Bitcoin is not friendly to the environment, Many countries use fossil fuel to generate the energy supplied through the main grid. If bitcoin mining equipment is connected to the main grid, enormous energy is consumed, which in turn requires more fossil fuel to be used. This is a chain of events that harm the environment, contributing to more environmental degradation as we see the results in more natural disasters that happen all around the world.
Regulatory uncertainties: Because of the above and many other challenges, Bitcoin has been banned or is close to being banned in many places. Some countries have already declared Bitcoin illegal. More countries have followed that path. Currently, the SEC is breathing down on all Bitcoin and Crypto users in the US. In other countries where Bitcoin is allowed to exist, strict legislation has made it possible for Bitcoin to reach mass adoption.
While all the challenges above are being addressed through many new blockchain projects, it remains to be seen how long it will take Bitcoin and other blockchain technology to be adopted mainstream.
Conclusion
Bitcoin and blockchain technology has brought massive and positive changes to global payments. It has created a platform for P2P, fast and low fee transactions that keep getting better. The decentralized nature, cryptography and many other aspects of Bitcoin has made it possible that the world is now an international marketplace where digital payments across borders happen in a matter of seconds.