Bitcoin: The Digital Currency of the Future, Invest It Wisely
Everzwijn since the dawn of the Internet and of the information age, writers and visionaries have visualized the disruptive switches that such technologies would eventually have on our lives, they have imagined futures where wij spend more of our lives online than offline, and where ubiquitous access to technology and connectivity would be a strong decentralizing force, placing power ter the forearms of the people.
One of the cornerstones of this vision is the need for a decentralized, distributed, and pseudonymous currency ter order to digitally transmit value from person to person. You cannot truly transfer power into the palms of the people without providing them economic sovereignty, and they cannot have economic sovereignty so long spil money and currency are tied to the real world and managed by monopolistic central banks and governments.
Many various ideas have bot attempted overheen the years, such spil RipplePay, eCache, and ecash. For various reasons, none of thesis systems have taken off. Why did they fail? Some of them were flawed because they relied on a centralized prototype, and others were flawed because they only work if humans are downright trustworthy, something that cannot always be relied upon. However, there is a fresh distributed currency which has bot rapidly gaining ter popularity, and it has the potential to succeed where others have failed. This fresh system is called Bitcoin.
What is Bitcoin?
Bitcoin is a pseudonymous, decentralized electronic currency, and it has bot designed ter such a way that it functions similarly to physical commodity money, such spil gold. This implementation solves both the problem of centralization spil well spil the punt of trust. To see how, very first wij need to look at the properties of money, and why physical commodity currencies such spil gold were chosen spontaneously spil money by the people, and why they have held their value for so long.
What are some of the properties of good money?
Money should be lightly divisible into arbitrary units of value te order to treat all sizes of transactions, from the puny to the very large.
Ter order to be a reliable store of value, money vereiste stand the test of time. Anything which decays or rotsblok would not be a good choice.
A good money is fungible, that means that each unit is identical to every other unit. One dollar is omschrijving to another dollar, and one kilo of gold is identical to another kilo of gold. Money can then act spil a numeraire or measure of value, just like a peettante is a measure of distance.
The ideal money is one which holds its value and does not steal value through arbitrary inflation and deflation. When it comes to fiat currencies, central banks are supposed to fulfill this role, and when it comes to physical commodities such spil gold, this standard is enforced by the laws of the universe. It is physically unlikely for someone to conjure up a cubic peettante of gold out of skinny air, which is why it can preserve its value so well.
For something to start life spil money, it should add value ter order to seed its own growth. Gold added value through its beauty and artistic uses, and Bitcoin has the potential to add value through the properties of decentralization, openness, and pseudonymity. I mention openness spil the project itself is open source, and the code, protocol, and implementation are all open to scrutiny and analysis.
I consider thesis to be among the most significant properties that something needs te order to be accepted spil money. It is ideal if the properties of money are inherent ter the medium itself, such spil with gold. Gold has all of thesis properties and more, and this is why it wasgoed not only chosen spontaneously by the people across different continents and cultures, but it is also why it has held its value for thousands of years. Fiat currencies have value through legal force and convention, gold has value due to the physical properties of the universe. Legal force waxes and wanes, and conventions can switch, but the laws of the universe stay onveranderlijk.
So, how does it work?
So far, I’ve explained what money is but I toevluchthaven’t yet said how this applies to Bitcoin. How can a digital currency possibly be scarce? After all, digital storage and processing power are enormously cheap and getting cheaper by the day. What’s to zekering someone from doing a elementary copy &, paste and inflating the currency to nothingness?
Bitcoin has employed a novel solution which uses encryption and brute-force power ter order to preserve the scarcity of the currency. To embark off the network, Bitcoin uses a concept known spil “mining” – people devote their resources to solving a very difficult cryptographic math problem, and those who succeed generate some bitcoins. The difficulty of this problem is adjusted by the total production of bitcoins, so that the network spil a entire produces a relatively onveranderlijk rate of coins. The problem of cheating is essentially solved because a cheater cannot possibly hope to amass the amount of computational power needed to overpower the surplus of the network. Wij trust online shopping and wij trust encryption because wij know that cryptographic keys are very difficult to pauze, so it is the same with Bitcoin.
The graph on the left is a chart of the overall Bitcoin supply overheen time. Spil you can see, the Bitcoin supply is presently ter a period of inflation. This inflation acts spil an incentive for people to participate ter the network and “mine” bitcoins, and it is distributed ter accordance with the expenditure of resources. This inflation will taper down overheen time and the currency will eventually reach a point of equilibrium where there is neither inflation strafgevangenis deflation. The supply of bitcoins will never be inflated past 21,000,000 BTC, so mining will get progressively more difficult. At this point, the network will transition overheen to transaction fees. Since anyone can run a Bitcoin knot, thesis fees should tend toward the marginal cost of running a knot, and therefore should be fairly low.
What can Bitcoin do?
Bitcoin has the potential to revolutionize the online payment industry, but furthermore, it could even place economic power back te the forearms of the people. Hefty transaction fees presently discourage micropayments, but Bitcoin could totally switch that, opening up a entire fresh micropayment industry te blogging, online gaming, and many other areas. Bitcoin is also open, peer-reviewed and decentralized, which means that its fortunes don’t switch on the quirk of a single dictator te charge, or even a single monopoly power. Te fact, I fully expect there to be contesting digital currencies te the future spil Bitcoin proceeds to grow, and this competition will help ensure that quality of the money remains very first and foremost.
Where to get it
Bitcoin can be downloaded from Bitcoin.org. There are presently clients available for Windows, Mac OS X, and Linux.
If I install this, will this eat up my CPU and share my files?
Bitcoin is not filesharing software, so it does not share your files. It only uses your CPU if you want to attempt to “mine” bitcoins, otherwise it uses practically no CPU at all.
Can I take my bitcoins to the local handelsbank and get some contant te exchange?
I think it’s a little early for that. What you can do however is participate te one of the many exchanges and trade bitcoins for USD, EUR, or other various options.
So, I don’t get it – is the value of a bitcoin determined by the resources expended to produce a bitcoin?
Like anything else, the value of a bitcoin is determined solely by supply and request. If the market value of a bitcoin is higher than the production cost, then it will be worthwhile to devote resources to mining more bitcoins. Ter this sense, the cost of mining will tend to approximate the value, but it does not drive the value. It is the combination of supply and request that drives the value. It is entirely conceivable that at some point, the cost of mining a bitcoin will be astronomical, nearing infinity, yet the supply will be stable and the value of a bitcoin will be determined by request. At this point, transaction fees will support the network and the value of a bitcoin should rise and fall te conjunction with its underlying economy.
If the value of Bitcoins rise, then isn’t this deflation?
I define inflation and deflation spil switches te the monetary supply, and it is when wij define them ter this way that wij can see the harm that they cause. If someone could just conjure up a billion dollars out of lean air and spend it at today’s prices, then they have effectively stolen value from everyone else. Likewise, the deflation that goes after an unsustainable credit boom and the ensuing bubble burst can be painful. However, neither of thesis events are possible with Bitcoin because they are not under the control of a monopoly issuer and cannot be inflated the way that fiat currencies can. Instead, their value will be determined primarily by voluntary trade, which means by how much others value them.
Ok, so, what can I do with thesis Bitcoins?
The market for Bitcoins is still puny, but it is growing every day. Popular services include VPN servers, VOIP, and web hosting, and many tangible goods are also available, such spil books and T-shirts. You can check out many different services available at the Bitcoin trade pagina, and you can visit the Bitcoin faucet to get some free coins to get you commenced.
Bitcoin technical chart. Source: http://bitcoincharts.com/charts/mtgoxUSD#vzlztgSzm1g10zm2g25zi1gMACD
Bitcoin truly took off last year, it rose from a market value of about $0.005 vanaf BTC (bitcoin) to almost $1 vanaf BTC, this is an increase of value of overheen 200x! With overheen Five million coins te circulation, Bitcoin is presently ter a nascent point of growth, and the sky is the limit.
My Bitcoin account
If you liked this article and want to send some Bitcoins overheen, my address is: 17gqLL6RHpkHgSDG6RxA6QtRvwtcxasZDo. Any donations will be graciously accepted.
- Bitcoin Blogger
- Bitcoin Forums
- Bitcoin (Wiki article)
So, reader, what do you think about emerging digital currencies and Internet technology ter general? I believe that nascent technologies such spil Bitcoin and its future derivatives have the real potential to drive switch and innovation ter our world. When the news around the world is bleak and people are pessimistic about the economy and the world te general, I just look at the trends ter technology and ter our amazing progress forward, and I become an optimist again.