Personal Finance

Bitcoins Breaking The Rules

After a hard working day how many of us wished they were fabulously wealthy.  Big money means solution to all problems and freedom to do what and when you want. For many people being rich is to own a pack of platinum credit cards, real estates, or rooms filled with green banknotes. Among dreamers there would be just a low percentage of people who do not think in terms of paper or plastic anymore and buy bitcoins online.  While some still associate wealthiness with tangible money, it evolved and became digital or virtual. Starting from to 2009 when digital currency was created, people are considered to be rich now not only if they own yachts and wear Armani, but also have a significant amount of bitcoins in their virtual wallets. Big investors the Winklevoss twins have recently informed that they own bitcoins equivalent to millions of dollars. Around 15.5 million bitcoins circulate as of May 2016 all over the world. To asses this amount the USD/bitcoin exchange rate is to be applied. It is as follows 1 bitcoin=658USD as of July 1, 2016. Needless to say, the sum in circulation is impressive. If you are surprised to learn about that, this post is right for you. Read on to find out about digital money and which new rules it dictates to existing economy.

Bitcoins Breaking The Rules

Digital currency is not controlled by a government

A government and conventional money are tightly linked. These relationships resemble the ones between a master and a servant, because a government shapes money’s future and our future as well.  Its magic word ‘Print’ increases money supply. The additional printing may lead to price increase and inflation. To put it mildly, instead of going for a dinner to a fancy restaurant we can afford only two Big Macs in case if money is devalued. It may sound unbelievable, but a government has no power over electronic cash. Thus, the first rule digital currency, or cryptocurrency, breaks is that money is centralized.  This virtual cash is absolutely free from any influence of any authorities, a bank, a reserve and government, in general.  It is decentralized and does not require any middleman to do complete transactions.

Virtual cash is not printed

The process of paper money production is complicated and refined. A special blend of linen and cotton makes it feel a dollar banknote so special and distinctive. With your eyes closed you can make out the sound of its crunching. And what a pleasure is to count money and watch a pile of money getting higher. Thinking about a stash in a secret place or a great deposit on the bank account gives us a security. In case with digital money it will be impossible to touch it and put in the wallet, under a mattress or to deposit. The reason why is that cryptocurrency is intangible. And that is the second rule broken by a new digital kind of money. It exists online and successfully performs a medium of exchange function despite the fact it has no physical form.

The author of Bitcoins is not known

Nobody credibly knows who Satoshi Nakamoto is. It is a pseudonym hiding the real name of one programmer or a group of them who created a Bitcoin payment system in 2008. The result of Nakamoto activities was the open-source software that makes it possible to exchange, sell and buy bitcoins. It looks strange that we can’t know for sure who was or were those inventors of online money. But it is as it is. Such kind of secrecy is inherent in the bitcoin system itself. It means that a user can create its bitcoin address without providing any personal data. The quantity of those addresses and keys is not limited.  In the same way, a user can transfer bitcoins without informing its name, address, ID and so on. History of conventional money is relatively clear in comparison with virtual money. It is known how it evolved from commodity money to plastic money and as of now to digital cash.

Bitcoins can be created

Despite its anonymity, a bitcoin system is quite transparent due to the general ledger known as a blockchain. A block chain is the one main keeper of all transactions happened in the network. That is a database where all transactions are stored. That ledger ensures that bitcoins spent will not be spent again and guarantee that all of them are valid.  A member of bitcoin community can check transactions and when they were executed. That sounds a bit confusing what is no surprise. Cryptocurrency (and Bitcoins are its main representative) is based on cryptography, that is a complex science embracing mathematics and computer science. The process of its creating is called bitcoin mining and again is governed by mathematics. Great computer power is required to complete this process.  Miners try their best to get the hash that should be necessarily lower than the definite value. Provided that a user managed to do this, he or she mined a bitcoin and gets a bonus. Mining is a great incentive as well. Ordinary banknotes unlike electronic cash can’t be created.  It is impossible to take a piece of paper and draw any value we need. Of course, mining process is far from being such easy as drawing is. Nevertheless it gives a chance to actively participate in money creation.

Digital money is any innovation ruins stereotypes, makes us think broader and see ordinary things in a different light.