Bitcoin is probably one of the most talked about currencies today. Whether it be on television, in the newspapers, on the internet or chatting with friends, this virtual currency has been making headlines for about ten years now. For many people, the concept of Bitcoin remains a bit vague and obscure. It’s true that a purely virtual currency with no physical aspect to it is a somewhat baffling concept. But the idea of it certainly generates a lot of interest and curiosity. Is Bitcoin really set to be the currency of the future? Read on to find out more … and unveil the mystery of the Bitcoin currency!
What is Bitcoin exactly?
Bitcoin is a virtual currency that was created in 2009, by an unidentified person. The creator of this currency has chosen to remain anonymous and so far, for the last ten years, the secret has been carefully guarded. Only his/her pseudonym, Satoshi Nakamoto, has been made public. Since its creation, the mother of cryptocurrencies has revolutionised the financial markets. Unlike traditional currencies, the ones you use every day when you go shopping, bitcoin is not issued or administered by a banking authority. This means that it does not pass through a bank or state institution. The rebellious Bitcoin currency thumbs its nose at the banks and plays by its own set of rules.
At first glance, it is true that Bitcoin is a strange concept. You might wonder about the validity of a currency like this. If we look at the pure definition of a currency, Bitcoin is actually just a computer program. If all money is real, it is difficult to understand how a virtual currency like this one can exist. And yet thousands of transactions are made every day, around the world, using Bitcoins.
How are Bitcoins issued?
They are issued on the blockchain protocol that has the same name. This technology allows information to be stored and transmitted securely, transparently and without a central control body. In other words, if you make a transaction using Bitcoins, it is immediately recorded in hundreds of computers at the same time. This guarantees a very high level of security, as it makes the transaction unfalsifiable. It also provides greater transparency, as hundreds of users keep proof of the transaction. Blockchain is thus used in the world of finance to ensure the traceability of transactions from beginning to end, without the risk of misappropriation of funds.
How many Bitcoins are there in circulation?
The number of Bitcoins to be generated is not unlimited and this was foreseen from its creation. The issuance of bitcoins is limited to 21 million units. According to initial calculations, this amount was due to be reached in 2140. However, the number of bitcoins issued passed the 17 million mark in 2018, accounting for 80% of the total amount. According to some experts, the maximum threshold will be reached at some point between 2020 and 2040. The fact that the number of Bitcoins is limited means that there will never be monetary inflation with this system.
Bitcoin behaves like gold
Bitcoin is generated today at a decreasing rate following an algorithm. 12.5 Bitcoins are generated every ten minutes at the moment, compared to 50 Bitcoins when it was launched in 2009. The issuance of this cryptocurrency is voluntarily made more difficult every four years.
Bitcoin’s price is not backed by any precious metal, but it behaves like gold by having a limited quantity, and not needing a central bank to set its interest rate or decide to generate inflation by creating more money. Based on these factors, Bitcoin is protected from the speculative actions of the banking and financial systems.
It has become the most valuable cryptocurrency in the world, far ahead of Ether and Ripple XRP. Its characteristics are attracting more and more investment funds and financial institutions.
But is Bitcoin really secure?
Security is one of the greatest strengths of Bitcoin. This aspect is important in monetary exchanges. And security therefore plays a key role in the use of this cryptocurrency. Although flaws have already been uncovered, particularly with Bitcoin wallets in Android, which have made the contents vulnerable to theft. But this didn’t come directly from Bitcoin and Google took it upon themselves to resolve the issue.
In reality, the Bitcoin network is said to be untouchable. It’s the machines and virtual wallets that are susceptible to being hacked due to security flaws. In other words, the Bitcoin network is not at fault. It is the external accesses to the Bitcoin network (which do not depend on Bitcoin) that remain vulnerable to attack.
What is the future of Bitcoin?
Whether or not Bitcoin is the currency of the future is a matter of debate. Still unknown ten years ago, this crypto-currency has become a worldwide phenomenon. If we go back a little in history, we must remember that before currencies, we used shells and grains of sand to make transactions. Then the first primitive currencies appeared which were later replaced by gold coins. Then, banknotes and checks took over. Until we finally arrived at today’s payment system by bank card.
We can cite the example of the director of the International Monetary Fund (IMF), Christine Lagarde, who judged that “bitcoin could eventually call into question the fractional banking model as we know it today. It would not be wise to reject virtual currencies”. So Bitcoin is another revolution in the way that we pay for goods or services. It is a currency in the making and will take time to establish itself against existing payment methods. But it is not impossible. For this to happen, its price would have to stabilise further and its use would have to grow considerably more.
To conclude: is Bitcoin set to be the currency of the future?
Economists and financial experts are not in agreement about the future of Bitcoin. For some, this crypto-currency is not a viable future currency and it will run out of steam at some point. On the contrary, others believe that the electronic version of our banknotes is the currency of the future. It is important to note that Bitcoin was created and distributed without an identified leader, without marketing, and without a budget. So no matter what the experts think, Bitcoin has made incredible progress in less than ten years. For the moment it is still too early to say what the future holds and whether or not this virtual currency will replace the banknotes of today.
Are you interested in joining our community of #ProfitableTraders? Why not give it a go and subscribe to one of our ALTI TRADING training programs!