Bitcoin: A Cryptocurrency Case Study
Bitcoin is considered the "gold standard" of the cryptocurrency market. It
combines the strengths of commodity backed money ,vith the convenience of fiat money,
while avoiding most of the problems of both currencies. Bitcoin cannot be artificially
inflated, stimulated or depressed by the actions of a central bank or government. This is
one of the primary benefits that bitcoin mirrors from commodity money like gold.
However unlike gold, Bitcoins have fiat money advantages such as easier divisibility.
There is no need to carry coins or bars of gold when someone wants to go to the market.
No need for melting or printing or high shipping and guarding costs. Ifs easier to store THE EFFECTS OF CRYPTOCURRENCIES ON THE BANKING INDUSTRY AND MONETARY POLICY
and transfer. Bitcoin has many of benefits that fiat money has over gold or commodity
backed money.
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Some people have a fear of what potential hackers could do to a digital currency
like bitcoin. They what would happen if hackers could somehow hijack the system and
create new bitcoins or cause some nefarious effect with them. However this is a nonexistent threat. As mentioned before, bitcoin and cryptocurrencies follow a mathematical
algorithm that involves something that will be discussed in greater detail later called the
blockchain. Using mathematics, the blockchain can keep track of every bitcoin in
existence and where they all are at any given point in time since the bitcoins are first
created (Rykwalder, E. 2014).
The algorithm is set to only create a set amount of bitcoins
at a set time interval. It's an automatic system that cannot be tampered with. It would be
the equivalent of trying to hack gravity or hack the equation Y=mx+b. It's just not
possible to do it, attempting to do it doesn't even make since. (However, accounts and
exchanges that are not cyber-protected can be hacked, just like any other bank account
can suffer identity fraud. But the cryptocurrency system itself cannot be hacked.)
So even though bitcoins have the convenience of fiat or paper money, bitcoins are
actually "mined" like gold. The creator of bitcoin, whose real name is still unknown but
the pseudonym used is Satoshi Nakamoto, created a mathematical algorithm that creates
25 bitcoins every ten minutes, and will gradually decrease over time until the year 2140
when bitcoin will max out at 21 million bitcoins. As of July 2016 there are about 15.8
million bitcoins in circulation, so only 5.2 million are left to be created, according to Kaiko.com, a site the publishes bitcoin statistics.
The next question then is to ask how are
bitcoins mined and who gets the new created bitcoins first? The answer is the people who
earn them by being miners. Not the traditional hard hat, covered in coal and earth miners,
but data miners. These data miners are people who have complex computer setups with
massive processing speeds. They are the ones who help process the data in the blockchain
and process everyone else's transactions.
