I’m becoming more defiant of authorities and financial institutions, hence my growing interest in decentralized digital currencies and the promise of a Bank free world. But the phenomenon of peer to peer money is fairly recent, reliable information is nowhere to be found: like me, you’ve probably been showered with sensationalist rants and praises around Bitcoin, some call it a drug-money laundering currency, others see it as a revolution that will end the banking hegemony and start a new, equitable economy.
I wanted to have more reliable information on Bitcoin, more specifically, I wanted to know what difference it could make for us regular citizens. Is it safe? Is it an opportunity to be less vulnerable to economic instability and institutional rip-offs? Can we make a difference for the world using digital currencies?
I asked my friend Philippe Jedar to share a series of street-level lessons on Bitcoin. He kindly wrote this first post for gr0wing:
Since its launch, Bitcoin has been widely discussed, triggering all kinds of reactions. When I engage in a conversation over Bitcoin, I generally get snarky comments, like: “After all, Bitcoin mining is a bit like printing counterfeit money, right?”.
As often, most opinions in this area are emotional and undocumented.
On the other hand, I find it interesting that people around me have all heard about it, regardless their cultural background. They might not know exactly what it is or how it works, but they’re aware that there is this new currency called Bitcoin.
In this post, I’ll try to provide a quick overview so that everyone can put their fears and expectations aside and be clearer about decentralized digital currencies.
What is bitcoin?
Bitcoin is both a digital currency and a payment system. To take a point of reference, with regular money, like the Dollar, you have the currency on the one hand: the Dollar, and payment systems on the other, like ATMs or checks. Bitcoin is both the currency and the means that allow transactions to be made.
To use the analogy of vehicles, think of Bitcoin as the car AND the road it travels on. This car could travel to any city or country without border control or customs or even tolls…I’m sure that helps you figure why it’s such a big deal.
Here’s a short video that explains very well the nature of Bitcoin:
What differentiates Bitcoin from other currencies ?
Bitcoin is decentralized, it’s the first time a digital currency doesn’t have a center and a periphery and that’s what makes it stand out of the flock. This decentralized aspect is reassuring, it means that no authority controls the Bitcoin network, freeing your money from traditional third parties: banks and governments. You completely own a Bitcoin, it’s not sitting somewhere in an institution and it can’t be seized.
It matters if you remember what happened in Cyprus in early 2013, banks simply decided to freeze their customers’ assets. Bitcoin makes that kind of mishaps impossible.
When it comes to purchasing, nobody can stand on your way to claim taxes or fees, it’s also an anonymous means of payment, which allows the best and the worst of businesses to thrive. The best being these organic farmers in Argentina who used Bitcoin to bypass the middleman and unfair government regulations:
Another characteristic that differentiates Bitcoin from a regular currency is its superiority as a transaction system: Bitcoin transactions take a few minutes when bank to bank wirings can take up to five days, the cost of a Bitcoin transfer is about one cent…As opposed to banks who can charge dozens of dollars per operation.
Financial Risks and opportunities
Today Bitcoin is still going in its adolescent phase which makes it a risky and promising investment in the same time. The reason behind that is Bitcoin’s extreme volatility. These extreme fluctuations are music to the hears of currency traders who sell and buy Bitcoin for a profit. In that regard, Bitcoin is a very juicy opportunity, as well as a risky one.
There’s another opportunity, not as dicey a trading and more compatible with long term goals, it’s the option of generating Bitcoin, the exact term is “mining”.
Once again, Bitcoin’s creation process differs from regular money: any traditional currency can be issued by governments, causing inflation. With Bitcoin the money is “discovered” through computer calculation, anybody’s computer.
“Mining” amounts to identifying and processing transactions among Bitcoin users. All miners are competing over verification of transactions, each time an authentication is completed, miners get 25 Btc. Anybody can mine Bitcoins, although it’s more reasonable to use third party services called mining farms.
Mining is a very interesting aspect of Bitcoin, I’ll share more about it in an upcoming post.
What Bitcoin will change for you (and the world)
What was supposed to be a techno fad is turning into a seriously disruptive technology. Those who overlooked Bitcoin are quickly changing their minds. They’re probably right.
Here are the main areas that will dramatically change with Bitcoin:
Democratization of money exchange:
To this day, sending money abroad has been a hassle, it’s been ridiculously expensive or terribly slow. Bitcoin’s ultra fast and almost free transaction capability will change the picture. Expect Money Gram and Western Union to be in trouble. If you’re in a long-distance relationship, you know what I mean.
The end of financial institutions monopoly:
Because of their decentralized and peer to peer structure, new digital currencies will allow businesses and individuals to bypass banks and financial institutions. Although it’s still hard to guess what impact that could have on the world as we know it, chances are many of us could be happily surprised…besides from bankers.
Abolition of payment gatekeepers:
Up until now, when governments disapproved of a particular business or organization, they could lock their payments system down, that’s what happened when Paypal prevented its users from supporting Wikileaks, Paypal did it under the pressure of the American administration. Bitcoin has abolished this barrier, it’s now technically impossible to prevent anyone from purchasing anything or supporting any cause. Careful though, since Bitcoin doesn’t guarantee your anonymity.
Bitcoin being a full fledged digital protocol, there’s a lot more to expect from it than just a digital currency. So much more that’s it’s now being called the “Internet of money”. In my next post, I’ll try to tell you more on how to start using and generating Bitcoin.