Currency Bitcoins and Blockchains

Bitcoin is a currency, like euros or dollars, used to exchange goods and services. However, unlike these currencies, Bitcoin is an electronic currency that exists exclusively on the Internet. It gains prestige in cyberspace thanks to its efficiency, security, and ease of exchange. Its main difference compared to other currencies is that it is a decentralized currency, whose value does not depend on the interest rate set by a Central Reserve Bank or its reserves in commercial banks. Bitcoin is subject to the laws of supply and demand, raising or decreasing its value on the basis of the availability of Bitcoins in the market.

It is known that up to 21 million Bitcoins will be issued by 2040.

Bitcoin is the first implementation of a concept known as cryptographic currency. The first specification of the so-called Bitcoin protocol was published in 2009 under the alias of Satoshi Nakamoto in an email list. This digital character left the Bitcoin project at the end of 2010. Since then, there has been an enthusiastic community growing exponentially, thanks to the arrival of more developers working on the Bitcoin protocol. To date, several investigations have identified people who might be behind the alias Satoshi Nakamoto. However, there is no certainty about the true identity of the creator of Bitcoin, generating doubts and uncertainty about his intentions.

The Bitcoin protocol continues to operate because it’s an open-source software that any programmer can access. Although more and more software improvements are introduced, programmers cannot force changes to the protocol because it must maintain compatibility for all. In simple terms, Bitcoin will only work correctly if there is consensus among users. Hence, users and programmers are highly incentivized to avoid altering the code. From the user’s perspective, Bitcoin is nothing more than a mobile or desktop application, which provides a personal wallet and allows you to send and receive Bitcoins with ease.

For programmers, it is an activity that involves maintaining a sophisticated public ledger through the Blockchain network. That is, a shared database that functions as a log for registering purchases, sales, or any other transactions. This ledger contains each transaction processed, making it easier to verify the validity of transactions. The authenticity is protected by digital signatures corresponding to the sending addresses, allowing users to control the issuance of Bitcoins from their electronic wallets. In this scenario, there are programmers who are responsible for processing transactions, earning Bitcoins as a reward for their service. The main advantages of Bitcoin for the user are:

• Easy mobile payments. Bitcoin allows you to pay with a mobile device in two simple steps: scan the QR code (account address) and pay. There is no need to swipe a card, type a PIN, or sign.
• Security and control. Transactions are secured by cryptography. No one can charge you money or make a payment on your behalf. Thousands of computer miners generate codes to shield the currency.
• It works everywhere. Similar to email, anyone can use this technology from anywhere in the world. As long as there is an internet connection, operations can be done at any time.
• Fast international payments. There are no intermediaries that delay the payment process due to schedules or operational delays. Payments are made immediately after clicking.
• No commission payment. Bitcoin does not generate commission payments. However, a voluntary fee is often paid to increase the priority of the transaction or to compensate those who operate the Bitcoin network.
• Protect your identity. With Bitcoin, there is no credit card number that someone can use to impersonate you. In fact, it is possible to make a payment without revealing your identity, maintaining privacy.

Some of the disadvantages of Bitcoin are its emission limits. While it’s positive to avoid the loss of value, the fact that it is deflationary could encourage its accumulation. As Paul Krugman, the Nobel Prize laureate in Economics says, this could depress the economy. Another disadvantage is the guarantee of acceptance; although more and more establishments are accepting Bitcoin, they are still in the minority. It is primarily used by freelancers and for the acquisition of computer equipment. Also, there is no regulator; the fact that Bitcoin doesn’t have backing from governments and central banks can be a clear disadvantage for many who would feel more comfortable with the support of a regulator. Finally, there is the matter of anonymity. The enormous advantage that transactions are anonymous is a disadvantage for many who fear it is used for illicit activities and lack of compliance with tax obligations.

On the other hand, we have blockchain, which is a public ledger operating through a distributed network of computers. It does not require any central authority or third parties to act as intermediaries. It functions like a ledger book, but in this case, the notes are public and decentralized. Blockchain comprises a chain of blocks designed exclusively to prevent alteration once data has been published.

The concept and technology of blockchain were created in 2009 with the advent of the Bitcoin virtual currency. Its author, the pseudonymous Satoshi Nakamoto, published an article online that described a peer-to-peer system and a digital money protocol. He subsequently launched Bitcoin Software, creating a network under the same name and the first units of virtual currency, Bitcoins. Transactions are made from encrypted electronic wallets, which function similarly to bank accounts. All wallets have a public key and a private key. The public key is an alphanumeric string between 26 and 35 characters. It acts as a Bitcoin address and serves as an account number. Hence, if someone wants to send you bitcoins, you must provide them your public key. The private key is used to authorize operations from your wallet. This process is known as asymmetric cryptography.

There are also some points to discuss regarding the disadvantages of blockchain: the difficulty of implementation, potential unemployment, concerns about anonymity, and inefficiency. Blockchain is revolutionary and its implementation poses challenges. As a disruptive technology, it takes time to establish all the essential protocols for its proper functioning. This suggests it could take years before companies fully adopt this system and operate exclusively on it.
This technology aims to eliminate the intermediary in transactions. One possible consequence will be its definitive loss. That is, if this technology continues to grow and is increasingly implemented, there will be no need for an intermediary. This could result in its total or almost total eradication.

Take the example of cryptocurrencies. Being an open network, if a user makes a transaction, the other party can see the record of their activities. Imagine making a transfer to a relative; they would be able to see all data related to your cryptocurrencies. That is to say, everything – from your current amount, through the amount you have already spent, and even how you spend it. It’s not only past transactions that are visible but future ones too. However, while the process does not need intermediaries, it doesn’t mean it is entirely efficient.

As we know, it operates with a network of users and each of them has to confirm the information within a block. This means tens, or possibly hundreds of users must perform the same actions to obtain a single result, indicating great inefficiency.

In conclusion, Bitcoin is an electronic currency that exists exclusively on the Internet. Its prestige in cyberspace rests on its efficiency, security, and ease of exchange. It offers several advantages such as easy mobile payments, security, and control. It operates universally, facilitates fast international payments, charges no commission, and protects your identity. However, there are also a few disadvantages such as the potential for loss of value, questionable guarantee of acceptance, and its predominant use by freelancers. There’s also the absence of a regulator.

On the other hand, we have Blockchain. Some of its disadvantages include difficult implementation, potential for unemployment, anonymity, and inefficiency. Nonetheless, both Bitcoin and Blockchain may offer excellent financial alternatives. Still, like all new and emerging technologies, there are several loose ends to tie before they can operate correctly.

Work sited

1. “Frequently Asked Questions”, FAQ – Bitcoin, released under the MIT License, Facebook, Twitter, Network Status, 2018, bitcoin.org/en/faq#is-bitcoin-legal.
2. Marr, Bernard. “A Very Brief History Of Blockchain Technology Everyone Should Read”, Forbes, Forbes Magazine, 20 Mar. 2018, www.forbes.com/sites/bernardmarr/2018/02/16/a-very-brief-history-of-blockchain-technology-everyone-should-read/#5f94d7b27bc4.
3. Antonopoulos, Andreas M. “Mastering Bitcoin”, O’Reilly | Safari, O’Reilly Media, Inc., www.oreilly.com/library/view/mastering-bitcoin/9781491902639/ch01.html.
4. “Bitcoin Wallets for Beginners: Everything You Need to Know”, Cointelegraph, Cointelegraph, cointelegraph.com/bitcoin-for-beginners/what-is-bitcoin-wallets#physical-bitcoin.

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