In this digital age so many crazy things are happening and you totally get amazed by the development of these if you are not following digital space. I started using Facebook from 2007.At that time, I hardly see any of my friends on Facebook(except few hot girls.. :P) and some time i felt ashamed that why i don’t have “Orkut” account( Though, i had orkut account only for short time then i closed my account). Now, Facebook is like life line for everyone. It is an almost $ 150 billion company. This shows a radical shift in digital marketing and also it helps in strengthening digital marketing segment and created a new marketing segment called “Social Media Marketing”.
From the above, What i mean to say is that world has changed and it is going beyond real i.e. to digital. Internet user’s life is becoming digital. So, why can’t we have a digital money ?
Let’s read a discussion between two friends-
Santa- Hey, What is digital currency/Money ?
Banta- Dude, whatever money we spend online during buying our stuff using credit/debit card. These all are called digital currency because transfer of money happen digitally.
Santa- But i have heard of something called “bitcoin”. Do you have any idea about this ? i think this is also a digital currency.
Banta – No. , I think both are same.
This is what happens( embarrassment). Banta was totally incorrect about digital currency.
Nevertheless, I am going to answer Santa’s questions based on my small research on “bitcoin” which is closely related to whitepapers released from “bitcoin”. I am just simplifying the term – “bitcoin” to all my beloved readers.
In short and straight- “Digital Currency is a form of currency or medium of exchange that is electronically created and stored.” The money which we spend using our credit/debit card or Netbanking is commonly referred as “Electronic Money”. These traditional money is held up by banks on computer which is moved electronically. So, Ideally, these traditional currencies are not actual “Digital Currencies”. However, some economists don’t feel the same.
A pure example of Digital currency is – bitcoin. It is also called as a cryptocurrency. It was developed by Satoshi Nakamoto in 2009.
According to weusecoins.com, ” Email let us send letters for free, anywhere in the world. Skype lets us make phone and video calls for free, anywhere in the world. Now there’s bitcoin. Bitcoin lets you send money to anyone online, anywhere in the world for less than a cent per transaction! Bitcoin is a community run system not controlled by any bank or government. There’s no wallstreet banker getting rich by standing between you and the people you want to send and receive money from”.
Bitcoin is the first digital currency that is completely distributed. The network is made up of users like yourself so no bank or payment processor is required between you and whoever you’re trading with. This decentralization is the basis for Bitcoin’s security and freedom.
Bitcoin is a new kind of money. It’s the first decentralized electronic currency not controlled by a single organization or government. It’s an open source project, and it is used by more than 100,000 people. All over the world people are trading hundreds of thousands of dollars worth of bitcoin every day with no middle man and no credit card companies. It’s a startup currency which has never happened before.
Bitcoin is going to be the biggest opportunity for innovation that the world has seen since the industrial revolution. An idea whose time has come.
According to Bill Gates- “Bitcoin is a technological tour de force.”
“bitcoin” is based on peer to peer payment system. bitcoins are created by a process called mining, in which participants verify and record payments into a public ledger in exchange for transaction fees and newly minted bitcoins. Users send and receive bitcoins using wallet software on a PCs, Mobile or a web application. Bitcoins can be obtained by mining or in exchange for products, services, or other currencies.
So, let me explain it in details. Below is a diagram about current money flow when borrower take loan from a bank.
You can see that Interest rate is spread between lender and Bank. so, It is ultimately borrower who is getting hurt due to high interest rates.
Let’s look how “bitcoin” works. There is no mediator and you don’t need to pay any extra money.
So, Now the question is – How safe is a bitcoin transaction ? The next part would be little difficult to understand if you are not a physics student or if you don’t understand how public-key cryptography works ?(But you are free to google it..:) )
Bitcoin uses public-key cryptography, in which a pair of a public and a private cryptographic key is generated. A collection of keys is called a wallet. A Bitcoin transaction transfers ownership to a new address, a string having the form of random letters and numbers derived from public keys by application of a hash function and encoding scheme. The corresponding private keys act as a safeguard for the owner; a valid payment message from an address must contain the associated public key and a digital signature proving possession of the associated private key.
But, the Problem comes here- As anyone with a private key can spend all of the bitcoins sent to the corresponding address, the essence of Bitcoin security is protection of private keys.
Theft of bitcoins has occurred on numerous occasions, and the practical day-to-day security of Bitcoin wallets is a concern like the security of other forms of payment.
To deal with such issue of theft and possibilities of loosing bitcoin on physical drive, bitcoin client generates and stores private keys, and communicates with peers on the Bitcoin network.
To understand more about peer to peer model of bitcoin, please read Satoshi Nakamoto white paper.
So, How does bitcoin posses threat to real Money ?
Big firms has started accepting bitcoin as standard method of payment. Companies like- overstock.com, TigerDirect, Zynga have already started accepting bitcoin. University of Nicosia has started accepting bitcoin for its tution fee payment.
Bitcoin followers have suggested that Bitcoin is gaining popularity in countries with problem-plagued national currencies because it can be used to circumvent inflation, capital controls, and international sanctions. For example, bitcoins are used by some Argentinians as an alternative to the official currency, stymied by inflation and strict capital controls. In addition, some Iranians use bitcoins to evade currency sanctions.
These are just small achievement by this iconic “Digital Currency”. And, Obviously, American government is thinking to tackle the expansion of bitcoin currency. bitcoin is currently going through many questions such as – Black money distribution, Money Laundering, Money Theft etc. But with a more robust legal framework, and some regulatory transparency, a digital currency that behaves more like cash than a credit card may have an important place in the world markets of the future.
I feel this is really a big step toward a true “Digital Currency” and I believe to own some “bitcoin” in near future.
Please visit “How to buy bitcoin” to buy your first bitcoin. As of today, on Bitcoin Exchange, 1 bitcoin = 38001 Rs. (Varies between $600-$700).
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Data sources- Wikipedia & bitcoin.com