For many years, efforts have been made to implement electronic money, which can be exchanged directly between its users, without the mediation of a trusted third party such as a government or a bank (central or commercial).
How does Bitcoin work?
Bitcoin, like most of the corresponding digital currencies released after it (all with a lower, to date at least, impact), has the following key features:
1. It is private and decentralized: in other words, it does not belong to anyone, and no one issues it (country, bank, organization, etc.). Imagine it as the internet, which is a network that works distributed, has independent nodes that communicate with each other and is not controlled by any single participant.
2. It is fully digital: the currencies are issued by the network itself and can only be used within it. It has no counterpart to any underlying value (e.g., another currency or commodity), and so its price depends only on the rules of supply and demand, as they are formed at all times.
3. It is cryptocurrency: all the security and integrity functions of the transactions that take place in the network are implemented through advanced encryption techniques.
4. It has a stable and predictable offer: the issuance of new monetary units takes place within the network with a specific and (almost) deterministic algorithm. Thus, every 10 minutes or so, a constant amount of new Bitcoin is issued (which doubles every four years, or is now 12.5 Bitcoin), which is distributed to the network nodes, which provide computing power to ensure the integrity of transactions (these nodes thus “extract” new coins and for this reason, they are called miners). The production of new currencies will automatically stop when a total of 21 million Bitcoin are issued, which is expected to happen around the year 2130.
5. It has a transparent monetary policy. All the system’s basic parameters are embedded in its code, which is open source and available to anyone who wants to control (or even copy) it.
Can an ordinary person buy baked bread or shoes from eBay with bitcoin?
As with all currencies, all transactions can be made with bitcoin as long as the trader accepts it as a transaction currency. On eBay, there are lists of traders who accept bitcoin and which are frequently updated on the internet. Companies like Dell, Microsoft, and even platforms for live bet accept bitcoin as payment means.
Typically, we use the following criteria to evaluate the attractiveness of a currency:
1. Rarity: as mentioned, Bitcoin is very rare, as a total of only 21 million units will be issued.
2. Divisibility: while the Euro is divisible by two decimal places, Bitcoin is divisible by eight. This may not seem useful at first glance, but it is an important property seen through the prism of rarity. Even more important, if one considers a future in which machines will execute commercial transactions and payments in nano-quantities (machine-to-machine commerce and nano-payments).
3. Storage: The ability to store a currency easily, cheaply, and for a long time is undoubtedly essential. Obviously, Bitcoin has significant advantages, as it is digital and therefore does not wear out or can be destroyed, like banknotes, while it does not take up any physical storage space. Of course, its ease of storage can be a challenge for users unfamiliar with digital media.
4. Portability: The ability to transfer currencies easily and without restrictions is also an important factor.
5. Verifiability: The ability to distinguish genuine from the counterfeit currency is also important. Here, too, Bitcoin prevails, as verification is ensured by the technology used (blockchain). Of course, it should be emphasized that, as with storage, the technically advanced feature does not imply corresponding ease of use for everyone, especially until they become familiar with it.
6. Acceptance: a currency has no intrinsic value unless persuaded to use and trade it. Despite the technical superiority of Bitcoin over existing currencies, acceptance by broad masses of users is not guaranteed and, in any case, will take years. The rapid rise in its exchange rate is a sign of an upward trend in acceptance, but we are still far from the point at which we can talk about a real competitor of today’s currencies.