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Bitcoin: The Fascinating World of Crypto-Currency
By Sid Kal
There are all kinds of debate on the future of currency. There are the Keynesians who are all for quantitative easing and don't see any threat with excessive liquidity of paper currency (fiat currency) and there are the more conservative Austrian school economists who are worried that fiat currency can easily lose its value since it is only government backed and not determined by a free market. So while these schools debate the future of our monetary system, there is another system that is secretly making headway by leaps and bounds. This is the fascinating world of crypto-currency. It seems to work in the dark shady corners of the internet, but it is surprisingly open. After all, it redefines the whole way we look at money, currency and commerce. The first concept was proposed by Satoshi Nakamoto in a novel paper on crypto-currency and thus Bitcoin was born. So what is Bitcoin and what makes it special? Well, for starters, it is completely online. The currency in this case is the Bitcoin, which is transferred from one person to another. However, here is the weird part - there is no central issuer. The Bitcoin isn't backed by anything and you cannot "create" more Bitcoins. It is a system that cannot be manipulated at all, not even by the creator of Bitcoin. This is what makes it different from all other currencies in the history of humankind. So lets understand Bitcoin in better detail. In order to use the Bitcoin currency, you need to install a small software, which generates 2 keys. The first key is the public key, which you can display to everyone. This is the key that others will need to transfer money to you. However, there is no central "system" like PayPal or a bank in this case. You transfer Bitcoins from one computer to another directly. Each transaction needs to be verified, which is done through crowd-sourcing. You will never know who is going to authorize your transaction, so the system works. Bitcoin guarantees a lot of privacy because you can generate as many public keys as you want, unlike a username that you have to keep the same. It is not possible to crack the Bitcoin transactions because it is protected by the same technology - RSA algorithm of cryptography, which protects all your online transactions with credit cards. Everything is already set in the system. Right now, "mining" to verify transactions is what generates Bitcoins. It is a completely free market - whoever mines will get the Bitcoins. How many Bitcoins depends on a fixed algorithm which is dependent on how many Bitcoins are in circulation. In the end, by about 2020, you will no longer generate any Bitcoins and their number will be capped (theoretically, it is an exponential limit). You would be surprised to know that there is already a huge market for Bitcoins and many small businesses are open for transactions in Bitcoins. This is commendable because it has hardly even been in existence for 3 years. See the external links below to find the official Bitcoin website and more intricate details. Bitcoin has the ability to change the way we know and think about money. There are many other fascinating features of this currency, which I'll discuss in further articles (like how it will redefine economics because of a cap on production of new Bitcoins). |
Official FAQ for BitCoin
| Official Bitcoin site
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This intel was contributed by Sid
Sid
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May, 2012
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