Implementations of Bitcoin on Global Economy

Implementations of Bitcoin on Global Economy

Introduction

Bitcoin is a new digital currency which can be used to make payments to any person anywhere in the world. The entire payment process is almost instantaneous and requires minimal time. Bitcoin can be described as one of the first practical experimentation of the concept called as cryptocurrency. This concept is used to create, transfer and receive payments on a virtual platform. The idea behind that money is itself an object used to make and receive payments in exchange for goods or services has been used in the creation of Bitcoin. As Bitcoin is run on a virtual platform, it is not under any influence by any monetary or central authorities of a country. Bitcoin is also the open source software on which this digital currency can be used.Bitcoin account in some ways works in a similar way as a bank account works. Electronic ledgers are present in both, and when payments are made, one account is credited and the other debited (Bitcoin, 2013, pp.nd). This is a similarity, but there are few differences. Contrary to bank accounts, which are connected to a central server, Bitcoin accounts rely on peer-to-peer networking. Each Bitcoin program on a personal computer is connected to other Bitcoin programs which in turn are connected to more Bitcoin programs. When transactions are being made, the electronic system is updated automatically, and the message is being communicated across the network to all the Bitcoin programs. This is an effective way to handle transactions which reduces potential threats from hackers etc. The whole process is decentralized and allows people to pay directly to others without any help from an intermediary, such as a bank in case of making payments through bank accounts.

The process through which one can earn and spend Bitcoins is 'mining'. Each individual on the Bitcoin program can 'mine' coins similar to a way gold or silver can be extracted from a mine. Bitcoin miners focus on solving complex mathematical puzzles every few minutes and earn Bitcoins as a reward (Bloomberg Businessweek, 2013, pp.nd). Currently, there are around 7.5 million Bitcoins in existence. Number of Bitcoins awarded for each solution will be halved every four years and Bitcoins will cease to award new coins to users once the total number of Bitcoins awarded reach 21 million (Milken Institute, 2012 , pp.nd). Bitcoin was not at first used widely when it was first released in 2009. But over the years, the usage has increased manifolds. This is due to tech-geeks entering into the market of virtual currency. They were also lured by the fact they could earn money by developing hi-tech super computers which could solve complex mathematical problems. As the whole process is super-complex, individuals can not really afford to earn coins by investing heavily in super computers to earn a reward. For them, the only practical way to buy coins is through the exchange. There are various exchanges in the world which deal in bitcoins, ...