You have heard or have seen the word bitcoin, probably you have come accross the word on the internet, news or on in your WhatsApp groups. Or, You probably have no idea of what it is, say this is the first time to see the word on this blog. Well, if you do not understand the concepts of bitcoin or you did not know, congratulations after reading posts on this blog, you will understand what a bitcoin is.
In 2009, a person or a group of individuals by the pseudo name Satoshi Nakamoto invented bitcoin. As we all know that the financial system is marred with a lot of problems, ranging from inflation, deflation, friction, extortionate charges, liquidity crises etcetera, Nakamoto invented bitcoin as a technology that aimed at reducing all the above mentioned problems. They made bitcoin, an online payment system that is fast and governed by electronic computations. It is very cheap and faster. It only take a matter of minutes to settle a transaction with bitcoin, this bitcoin has faster confirmations and faster crediting of funds. For transactions in the traditional banking channels, it can take upto 24 hours to settle an RTGS, what about a TT??? Food for thought, but with bitcoin everything is instant just like sending an email.
Bitcoin is a payment system that is peer to peer. By peer to peer, I mean you can send units or fractions of a bitcoin to anyone just like what you do to an email. There is no need of going through the bank for the transaction to go occur. So, with bitcoin it is a payment mechanism that need no authorisation from the central banks. It only requires an internet connection and ownership of the bitcoins for one to be able to send to someone. Basically, the common method of acquiring bitcoins in Zimbabwe is through buying from people who already own bitcoin, or receiving bitcoins as remittances from relatives from the diaspora. Buying using mastercards has been affected negatively by the recently implemented exchange controls
So basically, bitcoin is an online direct payment mechanism that is not governed by any government. Bitcoin is digital, meaning that it has no physicality, it's existence is only found in the source code. Unlike fiat currencies (national currencies), bitcoin has a capped supply. Only 21 million bitcoins will ever be produced, so from 2009 up to now 16,388,700 units of bitcoins have been mined (www,coinmarketcap.com), that means only 4 611 300 units are left to be issued. the price of each unit of a bitcoin, as of today is at $2730.51, twice the price of an ounce of gold. As I have aforementioned, Nakamoto wanted to wipe out the issue of inflation, so he/she invented a system that has a capped supply. This was done to curb a situation where too many bitcoins would chase too few goods. Basing on the law of demand and supply, if something has a limited supply, and the demand is high, the value of the commodity will rise.
Some have dubbed bitcoin as the internet of money. Meaning transactions over the internet which are verified by a system of computers. Just imagine, you do not need anyone's permission to pay for something using bitcoin. As long as you have the recipient's wallet address, you can send them units of bitcoins. If you are to buy a car from Japan using a TT, you would go to your bank, fill a TT form, then after days, that's when your transaction will reach the recipient. Isn't that boring to wait for days for just a transaction versus 10 minutes???
Here are some of the features of bitcoin
The Bitcoin syste is temper proof which leads to another key characteristic, which is being deflationary because of known and fixed supply. Quantity to be supplied is fixed, and cannot be altered, this makes their value to increase over time. For instance, when bitcoins was launched, they are worth less than a USD cent, but due to their deflationary feature, they appreciate in value. Governments introduce new money through printing, however bitcoins enter into the coin supply as rewards for miners who have had their computer hardware solve cryptographic problems called hash functions. Unlike fiat currencies, bitcoins are issued through complex and energy intensive computations on the internet and it inherits trust from the mining process. The supply of coins is predictable rather than the nature of fiat currencies.
The bitcoin system is a decentralized and are borderless meaning that they are political, government and regulatory bodies tamper proof. No organization has got power or control over the supply, value and quantity of units of a digital currency to be released, though they can be regulated as a way to formalize them, bitcoins are not backed by anything in any form, and solely function based on demand and supply, thus they do not have any intrinsic value. The total amount of units to be released is known publicly from creation and is written in the source code and cannot be manipulated,
The third feature of bitcoins is lack of physicality. They cannot be touched, debased or counterfeited. Unlike fiat currency it’s not decorated with faces of great and influential people or with monumental pictures of countries around the world. Their presence is only found in the source code and in the database that they are run digitally in the blockchain. Thus they have no intrinsic value. One can transact without the need to surrender personal identification details as the case of the formal banking channels. Some people think that they would just get arrested when they just walk into a bank. Thus with bitcoin, anyone can participate as long as they have an internet connected device. Private individuals can send or receive payments from anyone from anywhere without the need for identity. In spite of the need of a third party that records transactions, bitcoins are run on public ledger algorithm databases called the blockchain. Each and every transaction is recorded in the public ledger but there is no identity attached to any transaction thereby becoming highly anonymous. All recorded transactions are temper proof; they can never be altered or be confiscated.
The main mammoth idea of bitcoin is to offer fast, peer to peer international transactions with minimal costs where there is guaranteed privacy and without need for trusted parties. Bitcoin transactions are irreversible, thus the recipients are sure that they own funds, without chances for charge backs. The traditional banking takes days for transactions to be confirmed. There is no big brother when executing bitcoin transactions, as the payments are peer to peer and instantaneous between sender and receiver. Government and brokerage companies would be eliminated from the equation. No entity can intercept stored bitcoins and they can never be ceased or seized.
The bitcoin system is decentralized, and money exists intangible in computer programs. There is no need to keep track of records of the legitimate owners of the currencies. The bitcoin system is safer than the entire banking system, if the blockchain is to be compromised, the entire system would have to go away. Transactions are verified by a community of miners who contribute their latest computer hardware for the verification of transactions. The miners encrypt and broadcast transactions thus legitimizing and cross checking to avoid double spending of coins.
The blockchain is the bitcoin network centric system that records each and every transaction that allows people to collaborate on a global scale. The block chain software is the perfect replacement for third parties, and it is in this category that bitcoin shows its marvelous novelty. The blockchain minimizes double spending by being aware of all transactions which are publicized, and they are chained together, and the process is called the proof of work. Each transaction is hashed and time stamped and each time stamp includes the previous time stamp this acts as proof of work to check on the originality, existence and source of the unit being sent, this mechanism also clamps down the issue counterfeiting. A bitcoin transaction takes less than ten minutes to reach anywhere on the planet.
In conclusion, bitcoin was an invention which was done in 2009. It is a form of an online payment. It is in digital form and is governed by the use of decentralised computers that participate in verifying transactions to avoid the issue of double spending. As I have said, it's like an email of money.
Zimbabwean economy offers an opportunity for bitcoin to thrive.Cryptocurrency use in an economy like ours will see liquidity issues being solved.RTGS systems in banks at this stage are totally disfunct.Banks have failed their role to serve the people and the economy.Zimbabwe has no official currency at this stage.The use of bondnotes had the state wiping all forex from the street leaving institutions collapsing and the government trying to shield itself from debt.fiscal policies when they fail to hold it is ideal for digital currencies to move in.
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Thanks for the good article