Article written by Riya Thakur
Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
David Zimbeck says that, Bitcoins’ most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.
What is bitcoin based on?
According to David Zimbeck conventional currency is based entirely on belief and politics. Theoretically, you might think that if you handed over a dollar at the bank, you could get some gold back but history shows us that is not always the case. But bitcoin isn’t based on gold or politics or law; it’s based on mathematics and peer to peer networks.
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it. Everything is open source. This may be the first time in history where forgery is not possible.
What are its characteristics?
Bitcoin has several important features that set it apart from government-backed currencies here are some of them told to me by David Zimbeck.
- It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.
- It’s easy to set up
Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
- It’s anonymous
Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…
- It’s completely transparent
…Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all.
If you have a publicly used bitcoin address, anyone can tell how many Bitcoins are stored at that address. They just don’t know that it’s yours.
According to David Zimbeck there are measures that people can take to make their activities more opaque on the Bitcoin network, though, such as not using the same Bitcoin addresses consistently, and not transferring lots of Bitcoin to a single address. Also trading from one currency to another is a simple way to remain anonymous.
- Transaction fees are miniscule
Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.
- Its fast
You can send money anywhere and it will arrive minutes later, as soon as the Bitcoin network processes the payment.