Bitcoin mining, which is considered to be the smartest mode of financial transactions, is moving from its deceptive phase to a very disruptive phase amid cyber threats.
What is bitcoin?
Bitcoin is an experimental decentralized digital currency that enables instant payments to anyone across the world. Bitcoin uses peer-to-peer technology to operate with no central authority. The transactions are managed and money is issued collectively by the network. It is a payment system introduced as open-source software in 2009 by developer Satoshi Nakamoto.
Currently, one bitcoin is equivalent to about USD 600. It is divisible down to 8 decimal places or 0.00000001 BTC. The customers can engage in financial transactions through bitcoins, i.e. buying or selling things with the digital currency or exchange bitcoin for other currencies (and vice versa).
This smart currency, designed by very forward-thinking engineers, helps in eliminating the need for banks, credit card fees, currency exchange fees, money transfer fees and reduces the need for lawyers in transitions.
In its five year span, bitcoin has received mixed reactions from its customers, with those who mistrust banks standing in its support and those who mistrust a grassroots currency expressing in suspicion.
Reasons behind failure
One of the reasons that the experts hold responsible for the setback is that every bitcoin transaction requires a lot of processing power, which is why many individuals or companies contribute computer power in exchange for payment in bitcoins.
Mark Kamstra, a finance professor at York University’s Schulich School of Business, said, “Bitcoin has “fatal flaws” — like its fixed supply — that limit its growth. But he concedes that the underlying technology has the potential to change the online payment system.”
On why is it still functional, Francis Pouliot, director of public affairs for the Bitcoin Foundation Canada, said that the proliferation of other cryptocurrencies inspired by bitcoin is a testament to the power of the technology.
“Cryptocurrencies can’t be un-invented. The cat is out of the bag, the technology has been proven to be functional, so definitely it’s going to be used in one way or the other,” says Pouliot.
Schulich’s Kamstra says, “Even so if it doesn’t settle the trust issue for many people, bitcoin was created with an aim to avoid regulatory interference. You need trust for transactions between people. With traditional currencies, they work because countries back up the currencies with their power to tax citizens and, to some extent, stores of gold.”
Analysts also term price fluctuation as another reason for its decline.
Jean-Paul Lam, a professor at the University of Waterloo and a former assistant chief economist at the Bank of Canada, says another problem is the price fluctuation, says.
The initial months of this year have been tough for Bitcoin as it suffered three setbacks one after another. The three top exchanges halted its withdrawals, a reported heist of USD 2.7 million and the exploitation of a flaw in the Bitcoin protocol. The setback led to a common question- Are the end-times coming to Bitcoin?