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, which exists exclusively on the Internet, which 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.

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The Bitcoin is subject to the laws of supply and demand, raising or decreasing its value on the basis of Bitcoins available or not in the market. It is known that up to 21 million Bitcoins will be issued by 2040.

It 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 but since then there has been an enthusiastic community that has grown exponentially, thanks to the arrival of more and more developers working on the Bitcoin protocol. To date, although several investigations have identified the people who could be behind the alias Satoshi Nakamoto, there is no certainty about the true identity of the creator of Bitcoin, generating doubts and uncertainty about his intentions.

Bitcoin protocol remained in operation because it is an open source software that any programmer can access. Although programmers are introducing more and more software improvements, they can not force changes to the protocol because it needs to be compatible for everyone. In simple words, Bitcoin will only work correctly as long as there is consensus among users. Therefore, users and programmers have a high incentive 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 quickly and easily.

For programmers, it is an activity that involves the maintenance of a sophisticated public accounting through the Blockchain network. That is, a shared database that functions as a book for the registration of purchase / sale operations or any other transaction. This accounting contains each transaction processed, making it easier to verify the validity of the transactions. The authenticity is protected by digital signatures that correspond to the shipping addresses, allowing users to control the issuance of Bitcoins from their electronic wallets to their destination. In this scenario, there are programmers who are responsible for processing transactions, receiving in reward Bitcoins 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 the 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. As with email, everyone can use this technology from anywhere in the world. While 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 delays in operations. Payments are made immediately after having clicked.
  • There is no commission payment. Bitcoin does not generate commission payments. But, usually, a voluntary fee is paid to increase the priority of the transaction or remunerate those who operate the Bitcoin network.
  • Protect your identity. With Bitcoin there is no credit card number that someone can use to pass themselves off as one. In fact, it is possible to make a payment without revealing the identity, maintaining privacy.

Some of the disadvantage of bitcoin are the emission limits. While it is positive to avoid the loss of value, the fact that it is deflationary could encourage its accumulation and therefore, as the Nobel Prize in Economics says, Paul Krugman could depress the economy. A second is the guarantee of acceptance: although there are more and more establishments that accept them, they are still a minority. It is used primarily by freelances and for the acquisition of computer equipment. Also, there is no regulator, the one that does not have a backing behind governments and central banks for many can be a clear disadvantage as they would feel more comfortable with the support of a regulator. Finally, anonymity: As in the previous point, the enormous advantage that implies that transactions are anonymous is a disadvantage for many who fear that it is used for illicit activities and not to comply with tax obligations.

In the other hand we have blockchain which is a public accounting that works through a distributed network of computers, that is, it does not require any central authority or third parties to act as intermediaries. It works just like a ledger book but in this case the notes are public and decentralized. Blockchain consists of a chain of blocks designed exclusively to avoid their alteration once the data has been published.

The concept and technology of Block Chain was created in 2009 with the appearance of Bitcoin virtual currency. Its author, Satoshi Nakamoto, of unknown identity, published an article in the network that described a Peer-to-Peer system and a digital money protocol. In turn, it launched the Bitcoin Software, creating a network with the same name and the first units of virtual currency, Bitcoins. The transactions are made from electronic wallets or wallets, which are encrypted files that work similar to a bank account. All wallets have a public key and a private key. The public key is an alphanumeric string between 26 and 35 characters. This is the Bitcoin address and acts as an account number. In this way, in order for someone to send you bitcoins and reach you, you must previously give them the public key. The private key is used to authorize operations from your wallet. This process is what is known as asymmetric cryptography.

There are also some pints to touch regarding the disadvantage of blockchain, some of them are difficulty of implementing, unemployment, anonymity and inefficiency. As Blockchain is something revolutionary, one of its disadvantages is its difficulty to implement. As it is a disruptive technology, it takes time to establish all the essential protocols for its proper functioning. So it can take years until the companies adopt and operate only with this system.

As this technology aims to eliminate the intermediary in transactions, one of the possible consequences will be the definitive loss of it. That is, if this technology is growing and if it is going to be more and more implemented, there will be no need for an intermediary. And this can mean its total (or almost) eradication. Using the example of cryptocurrencies. As this is an open network, when a user makes a transaction, the other person can see the record of their activities. Imagine making a transfer to a relative. This can see all the data related to your cryptocurrencies. That is to say everything. From your current amount, going through the amount you already spent and even the way you spend it. And not only past transactions, but also future ones. Finally, the process does not need intermediaries, this does not mean that it is completely efficient. As we know, it operates with a network of users. And each of them has to confirm the information within a block. This will translate into tens or hundreds of users to perform the same actions to obtain a single result. This only shows great inefficiency.

In conclusion bitcoins is an electronic currency, which exists exclusively on the Internet, which gains prestige in cyberspace thanks to its efficiency, security and ease of exchange. It has some advantages and disadvantages which are easy mobile payments, security and control, It works everywhere, fast international payments, there is no commission payment, and protect your identity. Some disadvantage are loss of value, the guarantee of acceptance, it is used primarily by freelances and there is no regulator. In the other hand we have blockchains with some of the disadvantage like difficulty of implementing, unemployment, anonymity and inefficiency. Bought, Bitcoin and Blockchain will be an excellent financial alternative, however, as everything new and technological in the beginning we will have to tie some loose ends so these can work 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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