Bitcoin, a form of decentralized digital currency, rose to the limelight in 2009 and has exhibited a good amount of global demand as a means of exchange, enabling one to procure tangible substances in the actual world. It is, in fact, a crypto-currency where implementation is done entirely through open-source specification and by leveraging software that is entirely based upon peer-to-peer technology for both validation as well as transaction processing.
A Bitcoin constitutes an SHA-256 hash (an immensely large number) in hexadecimal set-up. For each person, Bitcoins are stored within an exclusive file known as a wallet, which also contains every address with respect to where Bitcoins are sent or received by the user. In addition to these, the wallet consists of the private key or password solely known to the user, which is needed prior to spending the Bitcoins. This crypto-currency can be exchanged or paid by initiating the request of a transfer from an address (like an email address) within the payer’s wallet to a payee’s address.
Being a Disruptive Technology
When describing a technology, using the word “disruptive” indicates that the technology is cheaper and simpler than what is already available in the market. It might also indicate that the technology is in some way inferior to what the market already constitutes. To analyze Bitcoin on these grounds, let us first have a look at the traditional banking system, wherein electronic transactions are usually reversible. If there is a fraudulent charge regarding your credit card, the same can be disputed wherein the merchant or bank, not the customer, needs to cover the cost. This might ensure consumer convenience, but it demands the financial system to be a closely knit financial network. A new member can increase chances of risk and hence is not well accepted.
In the case of Bitcoin, the network does not call for restricted access as transactions are cryptographically authenticated and irreversible, minimizing the risk of payment acceptance from strangers. Bitcoin acceptance for merchants implies avoiding a major portion of the administrative overheads, which are a part and parcel of traditional merchant accounts.
Thinking from the consumer’s point of view, however, the traditional banking system’s consumer protections are more preferred. Moreover, a plethora of locations across the globe accept MasterCard and Visa, whereas Bitcoin is accepted by just a few merchants. When compared against the elaborate websites of traditional banks possessing facilities for automatic bill payment and direct paycheck deposit, many find the Bitcoin system uncomfortable to use.
Is There Some Reason to Worry?
Although the majority of people are happy with conventional banking, there is a portion of the population who would like to cash in on Bitcoin to indulge in drug emporia, casinos, Bitcoin-based banks, retailers, derivatives markets and much more. Considering the wider picture, this open-source digital currency might pose a challenge to a government’s control over its existing currency through creation of an alternate currency channel, thereby disengaging individuals from that country’s prevalent currency.
As of now, people are more inclined towards conventional banking, probably because they are not accustomed to using Bitcoin. But if the use of this digital technology proliferates to pervade the economy, banks and governments might indeed have some reasons to worry.