Bitcoin: The Future of Payments
A brief introduction of Bitcoin and the mechanisms behind it
What is Bitcoin?
“Bitcoin is a peer-to-peer electronic cash system, that allows for online payments to be sent directly from one party to another without going through a financial institution.”
The Global Financial Crisis in 2008 has caused a lost of distrust between people and financial institutions. And Bitcoin solves the equation by removing the need of an intermediary in a digital transaction.
How does Bitcoin work?
Bitcoin is a decentralised, public ledger. And the sole purpose of this ledger is to track a single asset, bitcoin.
As this digital ledger is distributed across the world, all copies of the ledger is in sync. If all participants agree that the digital transaction is valid, it gets added to the ledger. And these transactions cannot be erased, modified or forged as everybody would know.
This ledger is not owned by any 3rd party, and is completely transparent to the public. Because of these very reasons, it is extremely scalable.
The more people that understand and trust this system, the more widespread the use of Bitcoin will be. For that to happen, years of education have to take place for everyone to embrace this new digital currency.
A deeper look at the system
Being publicly available would often attract the wrong attention: the Hackers.
Bitcoin attempts to solve this problem with clever economics — by incentivising participants to maintain the integrity of the network, while disincentivizing hackers with a money-losing proposition.
Participants who commit resources (we’re talking about a tremendous amount of computing power, electricity and money) to verify transactions— are called “miners”. In exchange, they are rewarded with bitcoins that are worth thousands of dollars.
Hackers, themselves, also require an immense amount of capital upfront to corrupt the system. It serves as a deterrent for anyone attempting to hack Bitcoin and steal everyone else’s coins.
Furthermore, if the Bitcoin has really been hacked into, the price of the bitcoin would definitely dip, making it economically unwise and not worthwhile to do so.
A recent study showed that Bitcoin Mining is now consuming more electricity than 159 Countries, including Ireland.
In May 2021, Tesla reversed its course on accepting Bitcoin, citing environmental concerns around the resources required to mine Bitcoin.