With the emergence of Bitcoins, the Cryptocurrency market opened up in 2008. The anonymous developer, Satoshi Nakamoto tried to sell the concept of Bitcoin to the world in two distinct attempts. He cited not being able to trust the financial institutions as a reason to replace intangible money with Bitcoins. According to him, in the case of cash and coins, there can be no reversal in transactions. However, in the case of transactions that include banks as mediators, faulty transactions may occur.
Thus, to put a stop to this, Nakamoto finally launched Bitcoin in 2008. The basic problem that Bitcoin solved regarding virtual money is that it cannot be double-spent any longer. Bitcoin uses Blockchain technology which makes it impossible for such a glitch to happen. All data regarding transactions is encrypted in the blocks of the public ledger. This system has been built for an interesting purpose.
Features of Bitcoin
- Blockchain technology is used in the case of Bitcoins for two main reasons. The blocks will contain unalterable data concerning the transactions. This eliminates the prospect of double-spent or reversal of transactions. At the same time, blockchain holds all the investors responsible for the transactions to happen. Since it is a decentralized currency, there is no central authority in the form of a financial institution acting as a mediator.
- All transactions are approved by the investors. There is no autonomy. The entire procedure is overseen by the investors with access to the public ledger. Bitcoin has been designed in such a manner that it does not ensure a stable value. However, with only 21 million Bitcoins available in the market, with the discovery of each, the price per Bitcoin steadily rises. The value of Bitcoin is speculated to follow an upward curve.
- Bitcoin started as a store for value. This prompted many investors to start investing in it. Trading applications like cryptocurrencies facilitate such investment ventures. Later on, with companies like Tesla accepting Bitcoin as a mode of payment, it has risen to the status of a currency. Many business ventures are carried out in exchange for Bitcoins. These transactions evade the purview of the government.
Problems with Bitcoin
Even though the news of Bitcoin’s success has spread like wildfire and has attracted a wide range of investors, few problems remain at the heart of the situation. They are discussed below:
- Acceptability: The acceptability of any product depends on its reliability. The unpredictable nature of the value that Bitcoin holds makes it somewhat unreliable. The steep rise in its value makes investors anxious about the impending fall. However, it has been observed that Bitcoin has only followed the upward movement. Thus, waiting for a fall in the value is unfounded.
Without the circulation of the currency, its acceptability would make no sense. If the number of people using Bitcoins is bleak, it cannot possibly become a currency. It takes worldwide acceptance for it to become a currency.
- Value: Bitcoin’s value in terms of other currencies and goods will keep fluctuating owing to the unpredictable nature of its value. This will be a perennial problem till its value follows a course of reasonable growth. One’s intrinsic value may fluctuate to a certain extent. The rise or fall in price should not be drastic and unforeseen.
- Liquidity: Unless the value remains fixed, Bitcoin’s liquidity remains questionable. The value plays the most significant role in liquidating an asset. In the case of Bitcoin, it can only be liquidated when the value will become stagnant. The stark rise and fall in its value affect its liquidity.
For Bitcoin to gain a prominent position as a currency, it has to resolve its intrinsic issues. It holds myriad possibilities, awaiting realization.