Essay on Bitcoin: Does it Really Work?

Select network

                   

Stock markets crash, national exchange rates fluctuate, governments go into debt, and inflation dictates the price of goods – the economy is the driving force behind every nation. Citizens call for regulation for a system that often seems to not be regulated. Cryptocurrency, similar to Bitcoin, rose to fame in 2014, promising a new, safe way to spend money. But is it really worth it? Is Bitcoin doing the job it claims? The following essay is presented by Ultius as an example of the writing done by our freelance writers. 

Your Money in the Clouds: What is the Fuss about Cryptocurrency?

Governments create mediums of exchange called currency to facilitate buying and selling in the national economies (i.e. United States Dollar, USD; United Kingdom Pound Sterling, GBP; and France Euro, EUR). Governments release a specific amount of notes and coins to stimulate or reduce buying in a country. Cryptocurrency also is a form of currency. However it is not controlled, regulated, printed, or recognized – officially or unofficially – by any organized government (Rolph). This is not the case with digital money like Bitcoin. Cryptocurrency is designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography. 

Using highly advanced cryptography codes and algorithms, cryptocurrency is used to secure transactions and control the creation of new coins, like Bitcoin and Altcoins (Rolph). Cryptocurrency is electricity converted into lines of code with monetary value. Simply put, it is digital currency. Since the coins are not regulated by government exchanges or national treasuries, cryptocurrencies are fully decentralized (Burn-Callander). The value of these currencies is dictated by amount released through mining and code writing by users. 

What is Bitcoin?

Bitcoin is a digital coinage and monetary exchange used online (i.e. cryptocurrency). Founded in 2009, Bitcoin hit the market as a creation by a pseudonymous developer named Satoshi Nakamoto. Much speculation has been made regarding Nakamoto’s true identity. To date, no one has been named as the heir to Bitcoin’s empire (Graydon). 

Using SHA-256, a set of cryptographic hash functions designed by the U.S National Security Agency, Bitcoin operates on the proof-of-work system (Graydon). The system is designed to recognize two basic functions – Balances, called block chains and Transactions, called private keys. These two set of code regulate the security found in Bitcoin’s basic cryptography. Users also are issued a Bitcoin address (BTC) to use like a debit card number or bank account number and routing code (Graydon). 

Block chain is an open source code that displays the public ledger of the entire Bitcoin network. The Block Chain includes all confirmed transactions and maintains a basic net worth of the currency rate. This is similar to national exchanges keeping track of business transactions and assigning a value to each nation’s currency exchange rate. It also acts like the U.S. Treasury and tracks the amount of Bitcoins in existence. This allows wallets to access the Bitcoin database, determine the value of the currency rate, translate it into the total amount a user has in their account, and sends this information to the online banks

Private Keys are individual transactions that are recorded in Bitcoin’s database. Bitcoin wallets maintain a confidential piece of data called a private key or seed; those keys provide proof the transaction came from the stated account. This is one of several security precautions placed into the system to prevent fraud and copying code. Private keys are similar to debit card pins and signatures used on checks to make purchases. It proves the account holder is who they claim to be (“How does Bitcoin work?”).

Invisible Currency: Is Bitcoin Real money?

Users install wallet software on their phones, or, in some cases, computers. These digital wallets serve as a type of bank account to process payments, accept transfers, deposit new coins, etc. The difference between a bank and Bitcoin wallet program is government guidelines and protection (“Some things you need to know.”). To date, governments do not regulate or insure Bitcoin currencies held by wallet banks ( Burn-Callander).

Once a user installs and sets up their new wallet, the program creates an address. Bitcoin addresses are very similar to email addresses in design. They serve as a type of routing number for transferring currencies  For example, a user’s wife can send Bitcoins to her husband if she knows the address. She also can withdraw currency from his account using the same protocols. Thus, Bitcoin recommends generating a separate address for each transaction and/or person you want to perform transactions (“Some things you need to know.”).

Some users may decide to maintain addresses for their closest friends and family. Others may decide to leave nothing to chance and create individual transaction addresses.

To accept payments or make purchases, most users simply provide their address and either withdraw or transfer the funds. Some online stores allow users to convert their Bitcoins into the standard currency, for a nominal fee. Other stores accept Bitcoins as a direct form of payment. Investing and earning Bitcoins is similar. Users simply purchase their coins from other individuals, businesses, or currency exchange departments.

Keeping Its Promise: Is Bitcoin Working?

With the promise of a currency that doesn’t need regulation, is safe from inflation and stock market crisis, offers security unheard of in traditional currency and a promise to make people richer, Bitcoin may have promised an impossible arena. There are concerns about the validity of the coinage and whether it will ever become a mainstream tool (Burn-Callander). Questions include “Is this real money?” “Does Bitcoin really have my best interest at heart?” “What is Bitcoin?”

The pirate site Sci-Hub, which gives users free access to academic journals that normally require payment is funded entirely by donations made in bitcoins.

Just the misunderstanding of Bitcoin itself is a strong diversion against the coinage (Burn-Callander). Other factors, including religion, cultural roles, and government propaganda are large deterrents.

The largest issue with Bitcoin is understanding the basic functions. People love simplicity. And, while the government systems aren’t simple, national mints do offer a system we understand. The government prints new money to stimulate the economy and stops when there is too much spending. People know treasury notes and coinage are printed at the mints, from special security paper and metal. Most do not understand the mining principles behind cryptocurrency (Burn-Callander,Gorale).

Emerging Economies: Does Competition Hurt Bitcoin’s Effectiveness?

One of the toughest chains to beat is competition, and Bitcoin has more than enough competitors. Last year, Bitcoin saw its cryptocurrency family grow by more than two hundred new currencies. New digital currency, not including Bitcoin of course, is called Altcoins. In April 2011, Namecoin was the first altcoin created to form a decentralized DNS to make internet censorship more difficult. The new currency arose from the concern Bitcoin would grow too large and lose its appeal. Others were concerned Bitcoin would grow too large, and governments would start regulating the new currency (Grant, “Bitcoin for idiots.”).

Other currencies soon followed.

Litecoin was released October 2011 and became the first successful cryptocurrency to use scrypt as its hash function rather than SHA-256. The new formula gave the general public the ability to mine for Litecoins without the purchase of specific hardware such as the ASIC machines used to mine Bitcoin. While this makes it easier for others to use these services, Bitcoin argues the new, unrestricting mining ability will breed fraudulent use (Grant, “Bitcoin for idiots.”).

These new coinage systems hurt Bitcoin in a way no one dreamed. As a rated currency, Bitcoin was perceived to last well into the new money age. Now the creation on hundreds on new digital currency prevents Bitcoin from following its tried and true measures. Consumers are turning away from mining Bitcoins for an easier solution (Gorale). This prevents Bitcoin from truly setting the stage for a new empire.

Religious Influence: Is Bitcoin the Devil?

While noting an academic outlook, one must admit religion and culture play a large role in decisions, including investing, banking, shopping, etc. Those cultural beliefs are significant to the effectiveness of Bitcoin. Some people believe the new money may represent the One-World Currency and Anti-Christ mentioned in Revelations (Hrenchir). Christians look to the Bible to make decisions every day. The Holy Bible New International Version (NIV) says the Anti-Christ will create a One-World Currency (Holy Bible, Revelation 13:16-17). Using this belief, some Christians have decided Bitcoin and other cryptocurrencies either are the currency mentioned in the Bible or the catalyst (Hrenchir)They have determined not to buy, sell, or conduct business using this currency.

Conclusion and Takeaways

Bitcoin may represent a tremendous opportunity, new technology, a failed attempt at investments, or the devil – depending on a person’s take on the matter. People don’t understand the currency, have found easier methods through new cryptocurrencies, and learned the decentralization coming from the new currency all but destroyed the original intentions. They don’t want to take the risk that comes with Bitcoin. This has stopped the cryptocurrency in its tracks, but not the movement. Bitcoin may or may not be dying. But, on thing is clear; the idealism behind it is thriving. 

Work Cited

Bible Gateway. “Revelation 13:16-17.” Holy Bible New International Version (NIV). N.d. Web. 4 March 2016.

Burn-Callander, Rebecca. “Five reasons why Bitcoin is the most dangerous currency in the world.” The Telegraph. 20 Jan. 2014. Web. 4 March 2016.

Gorale, Alex. “Bitcoin is Dead Because You Are Too Dumb.” Cryptocurrency News. 15 Jan. 2015. Web. 3 March 2016.

Grant, Rebecca. “Bitcoin for idiots: An introductory guide.” Venture Beat. 7 Feb. 2014. Web. 3 March 2016.

Graydon, Carter. “What is Cryptocurrency?” Cryptocurrency News. 16 Sept. 2014. Web. 3 March 2016.

“How does Bitcoin work?” Bitcoin. Bitcoin Project, n.d. Web. 3 March 2016.

Hrenchir, Tim. “Bitcoin and Bible Prophecy: 5 Reasons the Cryptocurrency Shouldn't Be Considered the Mark of the Beast.” Newsmax. 5 May 2015. Web. 3 March 2016.

Rolph, Duncan. “Is Bitcoin A Safe Bet? A Quick Guide to Cryptocurrency.” Forbes. 2 March 2016. Web. 3 March 2016.

“Some things you need to know.” Bitcoin. Bitcoin Project, n.d. Web. 3 March 2016.