Bitcoin: The Future of Money?
Bitcoin is the talk of the town. Seemingly overnight, the cryptocurrency has amassed both an exponential value in net- worth and world- wide attention. A bitcoin is now valued at over 4000 dollars. And the trend is catching on in South Africa. Supermarket giant Pick ‘n Pay announced that it would pilot Bitcoin payments at its head office in Cape Town, the first South African grocery retailer to do so. But what exactly is it? You’re not alone if you find the system confusing. We will try shed light on this increasingly popular virtual currency, and give you both sides of the coin.
What are Bitcoins?
Put simply, Bitcoin is an electronic currency. This digital money is transferred from one electronic device to another and stored in a digital wallet. The wallet is a kind of virtual bank account.
Unlike Rand’s, Dollars and Pounds, it isn’t printed and no centralized system controls it. Once you own bitcoins, they function in a similar way to gold coins.
They hold value and you can use your bitcoins to purchase goods and services online or hold onto them as an investment.
How does it work?
Bitcoin works on a type of public ledger called blockchain.
A block chain holds a decentralized record of all transactions and is updated and held by all users of the network.
The bitcoin network has individuals called “miners” whose job is to verify transactions, in an attempt to make the process more secure. Furthermore, this open community of miners from around the world use software programs that follow a mathematical formula to produce bitcoins.
What are the advantages and disadvantages?
- There is freedom to transact at any given time and to anywhere in the world. This facilitates complete control of your money.
- It is anonymous. Payments are made and finalized without personal information being shared with a third party, protecting against identity theft.
- There are very low fees or no fees at all. This works out cheaper compared to bank and credit card transactions.
- Information is transparent. Anyone at any time can verify it.
- As it is a decentralized currency, it does not have the same consumer protection one would expect from banks. It operates outside of regulations.
- There is a lack of awareness and understanding of Bitcoin and as a result the list of businesses accepting Bitcoin payments is still relatively small.
- The price of bitcoin can increase or decrease without prediction and is subject to market validity. This is largely due to there being a limited amount of coins and demand for them changing every day.
- It could encourage criminal activities such as money-laundering as it is not monitored by financial authorities.
What is the future of Bitcoin? Is it just a temporary fad or a 21st century version of gold here to stay? Only time will tell. However, one thing is for certain; the world will be watching.