As of this writing, the value of bitcoins in circulation is more than $186 billion US dollars. That is the same market cap as Coca-Cola. This is incredible, considering that Coke made $35 billion dollars last year. In contrast, Bitcoin, a virtual currency, doesn’t sell anything.
Today, there is a limited supply of individual cryptocurrencies. However, one day, the supply could be infinite because of the low barriers to entry. Anyone can create a new cryptocurrency. All you need is the interest and know-how.
According to my count, nearly 51 new cryptocurrencies exist since Bitcoin first came about. Such cryptocurrencies include:
PotCoin: Developed for the cannabis industry.
Coinye: Its mascot was Kanye West, until Kanye sued them for trademark infringement.
Petro: Developed by the Venezuelan government, backed by Venezuela’s oil reserves.
How Bitcoin and Blockchain Came About
In October 2008, “Satoshi Nakamoto” (not his/her real name) published a paper called “Bitcoin: A Peer-to-Peer Electronic Cash System” on the website metzdowd.com. This was Bitcoin’s first introduction as a digital currency.
The paper shared the intention of Bitcoin. They hoped to bypass government currency controls and simplify online transactions, eliminating third-party payment processing intermediaries.
Just a mere three months later, in January 2009, Nakamoto released the first Bitcoin software that launched the first units of the Bitcoin cryptocurrency.
In order to prevent inflation, the creator created a fixed amount of 21 million bitcoins. At the time of writing this, 16.9 million bitcoins are currently in circulation. That leaves 4.1 million bitcoins to be discovered.
Bitcoin thrives due to anonymity. Anyone can look at the Bitcoin ledger to see the transactions. However, the account information is meaningless, since it is just sequences of numbers.
This is why the dark web prefers to utilize Bitcoin. It is virtually untraceable. That allows nefarious characters to buy and sell goods without raising the ire of governments around the world.
How Bitcoin Works
Bitcoin is a cryptocurrency that you hold electronically in your computer or in a virtual wallet. No one person, institution or bank can control or manipulate the currency. Therefore, it is decentralized.
How to Buy a Bitcoin
There are many various platforms online where you can purchase cryptocurrencies. For instance, AvaTrade, a forex trading platform, provides off-exchange trading of cryptocurrencies.
Blockchain is the technology that maintains the Bitcoin transaction ledger. Thus, the Bitcoin blockchain acts as a database or ledger of Bitcoin transactions.
Peer-to-peer networks receive the database, and there is no central authority. Thus, participants in the network must agree to the validity of each transaction before recording the transaction. This agreement is known as a “consensus”, and the process is called “mining”.
After someone uses bitcoins, miners engage in a complex and resource-intensive computation to verify the legitimacy of each transaction. Miners must create a “proof of work”, which is a piece of costly and time-consuming data, to meet certain requirements. However, by design, no one can tamper the transaction records once they are added to the blockchain.
Uses for Blockchain
Blockchain may very well change how people do business in the future. It offers a level of trust. Blockchain possesses the ability to have permanent records of the transaction, allowing you to see any changes in real time. This transparency will fundamentally change the way businesses conduct themselves. By design, information recorded on a blockchain cannot be altered.
There are many benefits of blockchain for businesses. It can reduce time for obtaining information, decrease the costs of intermediaries, and alleviate risks of fraudulence.
Blockchain can easily transfer everything from stock, currencies, and even property rights without having to go through a middleman. In fact, it offers the same safety, quicker speeds, and lower costs than does a clearing institution.
Think about financial markets. They handle billions of dollars each day. A middleman must verify and clear each transaction. By eliminating these middleman, these financial markets could save millions of dollars each day.
The banks clearly love to save money, as Goldman Sachs, JP Morgan, and Bank of America have all created a coalition to implement blockchain into their banking practices. In addition, financial players like Visa, AmEx, and Nasdaq will also support blockchain-related services and technologies.
Blockchain can also be used in other sectors. For instance, blockchain has the ability to verify legal documents, health records, and even private securities.
If you are an accountant like me, there is even a possibility of blockchain eliminating our accounting jobs. That may be somewhat scary to think about, especially if you’ve read the book, The Truth Machine: The Blockchain and the Future of Everything.
Remember back in the 1990s when AOL was booming? For most people, AOL was their introduction to the Internet. Much like AOL, Bitcoin has a lot of momentum today. And also similarly to AOL, Bitcoin has been an introduction to blockchain. To me, the best aspect of Bitcoin is the technology within blockchain. It will be fascinating to see where the industry will move in future years.