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Bitcoins

The volatile rise of bitcoin has prompted many stories explaining why the online currency is a thing to watch. Bitcoin has started to gain popularity in the global world. As such, people want to know more on how the system works and all the modalities involved. Bitcoin phenomenon is closely monitored by business people and country’s all round the world as it’s something essential on the current and future states of world economy (Grocer, 13). This prompted me to dig deep into what bitcoin actually is and all the elements involved.

Bitcoin is a form of decentralized virtual currency (Forrester and Mark, 24). Bitcoins are stored up in a “digital wallet” that exists in a user’s computer. The wallet is a form of virtual bank account which allows users to either send or receive bitcoins, save money or pay for goods (Forrester and Mark, 25). The users of bitcoin own a set of public and private key which are analogous to any bank account. When sending money to someone else, the users usually create a transaction and sign it using their private key. Each of the transaction claims is referenced to a previous transaction which credited the user (Gray, 74). This means that bitcoins cannot be created out of nothing and coins cannot be spent twice.

Unlike the traditional currencies, bitcoins are managed and issued without a central authority. This means that there is no company, government or even bank in charge of the currency (Lancelot and Tata, 56). It’s simply a currency of the internet. This makes it more prone to corrupt banks or even wild inflation which introduces my thesis question, how effective is bitcoin as an online currency?

When using bitcoin to make payments, one transfer’s funds from A to B without knowing who the recipient or the sender of the funds is (Paganini and Amores; 54).The system is unusual as even the government or banks cannot know who is doing the transactions and do not regulate the way funds are exchanged (Paganini and Amores; 56). It simply means there is no regulation on how funds are transferred. On the other hand, the security of the system is advanced. Every ten minutes, all the transactions are put together in a form of bitcoin block that acts as a ledger. Blocks are hard to forge so by the transactions being part of the block, they are safe to spend. The blocks linked together form a chain block. The block chain records all transactions that took place and act as a definite authority on how much money the users have linked to their public keys. The particular block chain is secured by cryptographic algorithms, thereby making it impossible to even alter any transaction (Gray, 76).

The Bitcom algorithm is in its beginning stage and is a currency used in the free market whose rate is based on the supply and demand. A number of element could influence the Bitcoin rates, there is nobody who can state that only a few elements can influence Bitcoin. A good number of factors involve; media exposure, the first growth of the Bitcoin was affect by the media hype and hence led to the public’s familiarity. When the supply is fixed then media talks about it, it rises. The Eurozone crisis is another factor like when the Europeans shift their investment all together.

Hoarding of the bitcoins leads to a decline in supply hence affecting the price and acquired media attention. This results to more profit. Another factor is government influence like tax and regulation policies. Additionally, since bitcoin is at its infancy stage it is bound to move the price market. This can be attributed to the market being a free market currency that is at a price discovery level which is projected to become stable at some point.

The aspect of vendor acceptance is a niche form of payment method hence vendor acceptance will greatly affect it. In vendor acceptance, there exists a small group of huge internet firms that take part in the set environment. This comprises of WordPress that will enable one to sell a good number of things for bitcoins (Daniel and Mark, 24). Another example is WikiLeaks that are part of the rising list of online companies that value the Bitcoin donations. As the vendor acceptance goes on to grow, the value of the bitcoins use as currency grows tremendously.

Bitcoin offers users with the ability to sue them as payment systems from any point in the world affordably. The elements that are found in the bitcoin include virtual anonymity, irrevocable and decentralization (Lancelot and Tata, 57). The process is processed by computers or nodes that are on the same network. To make use of this form of transaction, this form of activity has to ensure that all nodes have a common ledger balance for every bitcoin that has a balance.

This form of currency can be used on any country as it is accepted and cannot be used by politicians or other malicious people who are trying to get elected to public offices to pay off their debts (Gray, 74). In a setting where the value of paper money is affected extensively by inflation, this is a great characteristic. Additionally, the world is willing to accept a global currency. Bitcoin meet this needs, it is like cash but not connected to a person’s identity and operations made using Bitcoins cannot be altered once done. They are similar to credits though not physical. They match what the world needs.

Works Cited

Daniel Forrester; Mark Solomon. “Bitcoin explained: today’s complete guide to tomorrows currency” Charleston, South Carolina: Create Space, (2013): 24.

David Gray. “Bitcoin: a dummies guide to virtual currency” Newark, DE: Speedy Publishing, (2013): 74.

Pierluigi Paganini; Richard Amores. “Digital virtual currency and bitcoins: the dark webs financial market exchange and secrets” West Warwick, RI: paganini/amores publishing, (2013): 45.

Ryan Lancelot; Jack Tata. “What’s the deal with bitcoins?”[Pennington, New York]: People Tested, (2013): 56.

Grocer, Stephen. "Beware the Risks of the Bitcoin: Winklevii Outline the Downside" . Moneybeat (The Wall Street Journal), (2013): 13.