Meni Rosenfeld (OP)
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April 15, 2012, 01:29:41 PM |
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Have you ever gone abroad and had to mess with exchanging money to the local currency?
Have you faced bureaucracy and headaches dealing with banks over relatively simple operations?
Did it ever happen that you needed to send someone money, but had no simple way to do it?
Do you find it wrong that when you buy online, the amount the seller receives is significantly lower than what you pay?
Have your credit card details been stolen as a result of breaking into businesses to which you had paid in the past?
If you answered yes to any one of these questions, or one of many similar questions, you may realize that the existing systems for managing funds and payments are far from perfection. If there exists a system with the potential to solve many of these problems, you will surely be happy to hear about it.
Such a system exists. Introducing - Bitcoin.
Bitcoin is a decentralized digital currency. Currency, because it is a medium of exchange - you can work or offer goods and services to receive bitcoins in return, and in turn pay bitcoins for goods and services in which you are interested. Digital, because it needs no representation as a tangible object - its natural habitat is computers and the internet. Decentralized, because there is no central body that issues it, controls it or is in charge of supporting it - all of these are done collectively by a peer-to-peer computer network that anyone can be a part of.
What is so great about that? Merely being digital solves many of the difficulties in holding it and transferring it. One can store bitcoins on his personal computer, thus obviating the need to deal with clumsy financial institutions, and one can back it up to prevent loss, or encrypt it to prevent theft. One can pay using it to anywhere in the world through the internet, with minimal fees determined on a competitive market, which are comparable to the low cost of the computational resources required to process the transaction. Since Bitcoin is secure by its nature, there is no need to pay for expensive systems to secure the transfer, or to give personal details (which could be stolen) to make a payment.
Since it is decentralized, there is no necessity to rely completely on one entity to do its job faithfully, and there is no danger that negligence or malice on its part will cause harm to the users of the currency. There is no worry that a technical problem will suspend activity, or that the issuer will decide to charge extortionate fees for the service that everyone depends on. In addition to the practical advantages, there is an ideology behind the personal empowerment derived from the ability to manage one's funds independently, without being absolutely dependent on any bank, government or payment company.
These advantages, and in particular the lack of need to deal with the question of "who will be the one to control the world's one currency", gives Bitcoin the ability to be an international currency with widespread use all over the world, and then it is no longer needed to exchange currency to conduct international business. Even if there are several digital currencies, converting between them will be simpler than with today's prevalent currencies.
Bitcoin has much more to offer, but here we should simply refer to the article dedicated to this topic, "Why do we need this, anyway?".
When something sounds too good to be true, it usually is. It's no wonder, then, that enthusiastically explaining the revolution Bitcoin is to bring often leads to suspicion. How does this work anyway? Can it really live up to all it promises? Is it a scam? Is it a fad? Is it really different from everything that existed so far? Why did it only recently come into being? Why would a virtual item with no official backing have value?
It is worth noting that the reason there was never something like Bitcoin so far (as opposed to many centralized digital currencies), is that no technical means was known to solve in a distributed way the "double-spending" (using the same coin to pay twice) problem of digital currencies. The first such solution was conceived in 2008 by Satoshi Nakamoto (pen name), who also wrote the original paper presenting the system (also available translated to Hebrew) and the first version of the Bitcoin software.
Bitcoin has existed for over three years. It's working, and you can install an open source software to receive and send bitcoins. The total value of all existing bitcoins, at the time of this writing, is 42 million US dollars, and there are hundreds of businesses in all domains accepting Bitcoin payments. Many professionals with the skills to analyze the system believe it can live up to the expectations, and entrepreneurs are working on varied projects in the new economy forming. Many of the alleged problems are easily debunked myths.
Bitcoin is far from being a finished project. It is a very flexible system with the potential to serve many needs, but there is still much work to be done to build the infrastructures that will allow fulfilling it (and there are people doing this work). It is not yet certain what is the optimal way for the system to overcome the challenges that lie ahead, but many ideas exist to upgrade Bitcoin's way of operation that will be examined as required, and there is no reason to think that Bitcoin will not continue to work successfully. That said, the main challenges are not technical, but rather have to do with the undefined legal status resulting from its revolutionary nature, and resistance by interested parties who have roots in the current financial system.
Bitcoin is a currency standing on its own and is not tied to the traditional currencies. Due to this, the value of each bitcoin, originating from the quantity of Bitcoin usage in commerce, changes according to the market conditions. The uncertainty about future trends creates significant volatility, which could make it harder to trade using this currency. As Bitcoin becomes more established, these fluctuations will become milder.
If this catches your interest, all that is left to learn about Bitcoin more, and more and more - there is a lot to learn. In English there are many resources, including the project's main site, a wiki, a forum and a Q&A site. In Hebrew there is content on this site and much more will be written, including:
Why do we need this, anyway?
Why you should invest in Bitcoin
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