Money is the equivalent of the value of goods and services, as well as a means of exchange and savings. Classic currencies such as dollars and euros are called Fiat money and are issued by Central banks. Familiar to us electronic payment systems such as WebMoney and PayPal operate with Fiat money, being actually an intermediary between banks and users.
Bitcoin is also a payment system, but it uses its own currency for payments. Bitcoin is the first digital currency that is not controlled by any financial institution. At the same time, bitcoin performs the main functions of money: it can be used to buy or sell services and goods, or as a means of accumulation. This currency is traded on exchanges, where, depending on demand, its rate is set against traditional currencies.
The main purpose of bitcoin developers was to gain independence from the banking system and reduce fees for transfers. In their opinion, the storage of money in modern banks is associated with great risks, namely: the funds can be blocked, the Bank may refuse to conduct a transaction, information about the account holders and the money can be stolen by hackers, Bank fees for transfers are too high. The solution to these problems was proposed by the developer (or a group of enthusiasts) named Satoshi Nakamoto.
Users were presented with a system based on an advanced information storage system – blockchain. The blockchain means the blockchain, where all transactions occur. To understand the work of this network, we will present it in the form of a book. Block pages are components of the blockchain, and transactions serve as records. In order to create a new page in the blockchain book, information about old blocks is processed. It is impossible to remove any component from this system: the blockchain securely stores encrypted data about all transactions that occurred in it.
To form a new page, i.e. block, you need to solve a mathematical problem. A person who has coped with this task with the help of computer equipment receives a reward in bitcoins. The solution of these problems ensures the performance of the entire system and is called mining.
The main difference between Bitcoin and conventional currencies is decentralization. Bitcoin is not controlled by any banking organization or government structure, the system assumes the equality of all participants – this is one of the basic principles. Unlike standard payment systems, there are no restrictions on the number of transactions and the amount of transfers.
Full copies or separate parts of the blockchain system are simultaneously stored on the computers of millions of users, so now there are no mechanisms that would allow to somehow affect the operation of the network. No one can take control of ongoing operations or cancel them. In theory, this is possible if one of the participants reaches control over 51% of the computer power of the system, but in practice it is almost impossible.
When transferring funds to another participant, it is not provided for the disclosure of personal information, it is enough to know only the number of the bitcoin wallet. All the system can see is the wallet address. No names, surnames, or other information about senders or recipients. Such data protection is unthinkable when making transfers using conventional payment systems. However, by the number of bitcoin wallet you can find out the number of coins stored in it and see the history of transactions. This data is publicly available.
Hacking a bitcoin wallet is not possible. A two-level security system and a unique access code are used to identify the user. All the necessary information is placed in a separate file, access to which is available only to the owner. There is also a minus – in case of loss of the password or number of a purse, it will not be possible to restore it. Just nowhere to come with a passport, unlike banks or other financial institutions.
It is also impossible to intercept coins during a transaction: the system uses cryptographic algorithms that ensure the reliability of payments. Transactions that are carried out in the Bitcoin system are non-refundable, the payment can not be blocked or withdrawn. But this, in turn, implies a high level of trust between the sender and the recipient of digital money. Bitcoins are sent between the network participants in a system where only two persons – the giver and the receiver. The third party has no influence on the exchange.
In order to prevent bitcoin inflation, a gradual restriction of the mass of this currency was provided. That is, the more people who want to use cryptocurrency, the more expensive it becomes, as the growth of the number of users is faster than the release of new coins. The issue of bitcoin is limited and is only 21 million coins, it is this amount of Bitcoin that is planned to be mined before 2140. According to experts, currently lost about 20% of the secret keys. Because of these features of the system to restore them will not work, the coins remain frozen in the accounts forever, which brings them out of circulation and reduces the supply of coins. But ultimately, it also increases the value of the remaining coins available.
To date, the popularity of bitcoin has attracted millions of new users to the system, which increased the load on the network. According to forecasts, by the end of 2019, the maintenance of the system will require the same amount of electricity as is consumed by the whole of Argentina per year. The capitalization of bitcoin in may 2019 amounted to $ 150 billion.
Leading countries have recognized bitcoin as a new reality. The most important issue for financial regulators is the anonymity of payments and the possibility of using bitcoin for criminal purposes: tax evasion and financing of banned organizations, money laundering, etc. the Main factor in the viability of bitcoin is the trust of ordinary people who are ready to use it in their lives. Bitcoin enthusiasts initially considered it a "tool of freedom" that would destroy financial slavery and destroy banks and inflation.
Financial experts and analysts disagree about the future of bitcoin. Some believe that this is an ordinary bubble, which will soon burst, and investors invested in it will suffer losses. Others, on the contrary, believe that bitcoin is waiting for a good future and it will become another means of payment and an asset for investment. The truth is somewhere in between.
The emergence of new cryptocurrencies displaces the position of bitcoin, against which it seems slow and expensive. Today, the developers have to solve the problem of speeding up the passage of bitcoin transactions, preventing possible illegitimate actions and improving the reliability of the system. But despite this, at the moment, bitcoin continues to be a good object for investment as a potential currency of the future.