bitcoin can have several advantages !

bitcoin can have several advantages !

These are difficult weeks for bitcoin, the virtual currency created in 2009 by an anonymous programmer named Satoshi Nakamoto. The main characteristic of this currency is its peer-to-peer payment system (user to user, without intermediaries), based on open-source software managed by a community of volunteers. There is no authority or central banks to manage the system or anyone who owns it. Its acceptance as a means of payment will ultimately depend on the trust generated by the currency. However, its security has been questioned with the disappearance of MtGox, until now the main exchange and custody platform for bitcoins, a victim of massive theft by hackers.

Trading bitcoins requires that both parties to a transaction have Bitcoin accounts, called bitcoin wallets. To transfer the currency, the seller must provide the buyer’s password, and the buyer sends the bitcoins to him using a software application. The network of Bitcoin users makes the computing power of their computers available to the system to verify that the seller is the rightful owner of the transferred bitcoins and record the transaction carried out in a register. This process, which aims to guarantee the system’s security, requires finding the solution to a complex mathematical problem and can take from a minute to an hour for very high volume transactions. Users who solve this problem are rewarded with new bitcoins (known as ‘digital mining’).

It is also possible to acquire bitcoins through the various exchange platforms that exist and operate in real-time. After the sudden closure of MtGox, Bitstamp has emerged as the most popular platform for the custody and exchange of bitcoins for other currencies.

A virtual currency like bitcoin can have several advantages. First of all, its low transaction costs compared to the commissions in payments with credit cards or the costs associated with a bank transfer. However, the security offered by the Bitcoin system is not yet comparable to that of traditional payment systems (it is a more vulnerable system, for example, to theft through computer attacks). Another feature valued by users (especially those engaged in illegal activities) is the practical anonymity in transactions and the fact that it is unnecessary to share bank account numbers or credit card details. Additionally, users can generate multiple Bitcoin addresses to differentiate and isolate each transaction. Finally, another of the attractions of the system is that it has been designed so that the supply of bitcoins (total number of units in circulation) will grow at a predetermined rate until reaching a maximum of 21 million (the current supply is 12.3 million Of units). This commitment to limit the supply of currency in circulation, in contrast to the practice of central banks that continually increase the money supply, aims to anchor the value of the currency in the long term and, in this way, promote its role as a reserve. Of value and its use as a medium of exchange.

The use of bitcoin as a medium of exchange is still very limited. Currently, an average of 42 transactions are carried out per minute (Visa carries out more than 165,000 per minute). Even so, the price of bitcoin increased dramatically during 2013, with great associated volatility: from $ 10 / BTC to more than $ 1,200 / BTC. Currently, the price is slightly below $ 550 / BTC after attacks suffered by hackers on some of the bitcoin exchange platforms and the closure of MtGox. The first transaction with bitcoins was made in 2010: two pizzas for 10,000 BTC. The price of these pizzas at the current price of bitcoin would be close to 5.5 million dollars.

The price of bitcoin reflects, fundamentally, speculation about its future value. Like all fiat currency, one that is not backed by precious metals, bitcoin will have long-term value to the extent that it is commonly accepted as a medium of exchange and store of value. The higher its acceptance, the more it will be worth (in its equivalent in dollars or euros) given several bitcoins in circulation. But the degree of future acceptance is a great unknown. The strong volatility of its price reflects, to a large extent, changes in the perception of this degree of acceptance. The day that Ben Bernanke, for example, declared in the US Senate that bitcoin could be a promise for the future, its price soared above $ 1,000. Days later, when the Chinese authorities banned the better that country processed Bitcoin payments, its price plummeted below $ 600. The prohibitions on the part of Thailand and Korea to use bitcoin in these countries also caused, in its day, an adverse effect on its price.

More recently, attacks on some bitcoin exchange platforms have led to the suspension of redemptions on three exchange platforms (MtGox, Bitstamp, and BTC-e), and the price dropped from $ 900 / BTC to $ 550 / BTC. The operations in Bitstamp and BTC-e normally recovered within days of its suspension, but Mt Gox has ceased operations indefinitely and has trapped hundreds of thousands of users who had about 744,000 bitcoins on the platform, equivalent to more than 400 million dollars at the current price.

In addition to the vulnerability to computer theft, bitcoin has a significant disadvantage compared to other fiat currencies: no one is required, by law, to accept it. That is, it is not legal tender and does not have the support of a State that has declared it acceptable as a means of exchange and a legal way to cancel debts (including the payment of taxes). On the other hand, bitcoin is also subject to competition from other virtual currencies. These currencies seem destined to acquire a greater role in the face of the progressive increase in the use of the Internet and social networks, the greater volume of electronic commerce, and the proliferation of digital goods.

Traditional financial institutions and large technology companies may want to introduce their virtual currency systems. To achieve widespread acceptance, these systems must have some of the main virtues of bitcoin (an agile medium of exchange with low transaction costs) and generate sufficient confidence so that the exchange rate against legal tender currencies maintains certain stability.


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