Bitcoin: The 21st Century Phenomenon
2017 proved to be a peak year of the cryptocurrency phenomenon, thanks to the spike in interest over the matter, the booming market for cryptocurrencies and especially – the adaptation of bitcoin in a wider than ever scale of use. With the end of the year just around the corner many of us are reflecting over the events which occurred through the year and crafting resolutions for what’s to come. While the latter is predominantly an individual process, the former – reflectivity over the immediate past – is a good opportunity to fill in the gaps and clear up any misunderstandings and / or lack thereof. If you still feel somewhat unable to thoroughly grasp the entire concept of how bitcoin became such huge news over the course of the year, that now even governments are addressing it – you are, most definitely, not alone. Here we will examine the origin myth of Bitcoin, its principles and where it stands today.
The dawn cryptocurrencies & their principle of work
Prior to its launch in January 2009, the first time the concept was described by its creator was in late 2008. One Satoshi Nakamoto, an anonymous figure to this day, published a paper, titled Bitcoin: A Peer-to-Peer Electronic Cash System. Many prior attempts had been made to create digital cash (or electronic money), starting from the 90s, but none of them had any success. What proved to be the novel approach, which made bitcoin stand out, was the fact that its system had no central authority. That is to say that each and every member of this decentralized peer-to-peer system has, at each and every moment, a list of all transactions being made through the network. This is how the concept of blockchain came to be. In short, the blockchain is a public ledger, which records transactions. Each transaction is broadcasted to the entire network, through its peers, by means of software. When a certain quantity of transactions is reached within a given time frame, this list of transactions is processed into a block, which is then added to the blockchain. This record-keeping process of processing the transaction data into these so-called blocks is what we now refer to as mining. Miners seal the blocks and compete with each other in doing so. Every block contains a cryptographic hash of its preceding block, using the SHA-256 algorithm, which links them together. Other elements of the mining process include the so-called proof-of-work, which serves to approve blocks generated by miners in the system. The proof-of-work is easy for each peer of the network to generate, but also extremely time consuming. It also requires a number called a nonce.
Bitcoin’s path into the lives of the many
While many of us knew of its existence back in the beginning of the 21st century’s teenage years, it was far from the media-noise-generating phenomenon, which it is today. All of the highs and lows, in terms of its value, left many skeptical opinions in the air. Other than that, the appearance of many other cryptocurrencies on the market, offering more and more innovative approaches or usages of the blockchain network, also had its impact on the way which the general audience felt about cryptocurrencies. Despite the fact that in early 2015 the number of merchants accepting bitcoins as a payment method was well above 100,000, there is still a strong opposition over the matter. While many governments and financial institutions are still strongly opposed to the idea that cryptocurrencies can be considered a real market – the strongest example being JPMorgan’s chief executive Jamie Dimon, who threatened to remove an employee, found to be trading in the cryptocurrency – bitcoin’s value and its stock exchange have been growing beyond anyone’s expectations. We are now at a point where in September China banned the use of cryptocurrencies as a criminal offence, while major members of the European Union – or to be more exact, Germany’s Financial Prime Minister, in support of France’s Bruno Le Maire – are pushing towards discussions on the implementation of regulations over the use of cryptocurrencies, accepting that the spike of interest over the matter is something which should not be left unattended to.
Due to the fact that bitcoin is pseudonymous (i.e. not related to real world entities), it has become the major means of payment for darkweb users and in general, a tool for many non-traceable deals, providing more ease to activities such as money laundering and drug trafficking.
And this gives way to the biggest question, which has been asked again and again, on the matter:
Is bitcoin the money of the future or a speculative bubble ready to pop?
In any case, it is clear to see now that many interests would rather entertain it as the former, meaning that we can’t just wish it away and the fact that it is here to stay ought to be embraced. As such, establishing regulatory means over the issue would be by far the best thing for governments to do at this point. But having once breached the governmental monetary system, the means of doing so would have to embrace fundamental questions about the entire system of capital.