Bitcoins: Fad or the Future?

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urrency, defined as “something that is in circulation as a medium of exchange” by Merriam-Webster, continues to become increasingly flexible, efficient and secure to keep up with the lightning-fast transactions of business in a changing world. The old metal currencies of gold and silver were heavy and hard to split into smaller pieces, leading to the invention of paper money that represented an amount of gold sitting in a vault. However, these first banks of the Massachusetts Bay Colony in 1690 printed too much money and were cautious with giving out loans; this did not lead to much growth in the business sector.

In 1971, President Richard Nixon officially removed the link between the US dollar and physical assets such as gold. This new type of money, called Fiat money, is given value from the amount of dollars in circulation, which can be increased or decreased by a central authority. Trust in this central authority allows, for example, for the cashier at Las Olas to agree to give you a double-meat burrito for a fist-full of slightly waterproof (please do not try it) green slips of paper.

In recent years, banks and governments have pushed to do away with physical currency altogether; questions have arisen regarding the actual purpose of pennies, nickels, and even dimes. Online payment platforms such as Paypal, Square and credit cards get rid of the need to carry a wallet of paper and coins, but now every transaction must be approved by a bank. This violation of privacy, compounded with high fees on transactions, drove the mysterious Satoshi Nakamoto in 2009 to invent Bitcoin, the first and most significant line of a new currency called cryptocurrency.

Cryptocurrencies are the first decentralized, virtual currencies: there is no central bank or authority to validate and charge transactions. Before the development of cryptocurrency, these previous necessities would have especially slowed down the entire process. Users of Bitcoin and other cryptocurrencies also enjoy complete anonymity, thereby eliminating the need for identification and making transactions more secure. However, the idea of a decentralized currency brings about several problems: if transactions are anonymous, how can one avoid fraud? How can digital counterfeiting and copying be avoided? How can the system sustain itself without a bank?

Nakamoto solved these problems by incorporating simple cryptography into transactions. The Bitcoin system is supported by a net of computers around the world called the Blockchain. Each computer retains a ledger of each transaction so that no user can spend more Bitcoin than they actually own. To avoid fraud and corruption, the decentralized network is not owned by one person; many users across the globe contribute and store information, yet no one person can hack or corrupt the entire system. Bitcoin transactions are protected by a simple private-public key duet. Each user has a unique private key, or digital signature, so that the Blockchain members can verify the signature using their public key. Thus, cryptocurrency cannot be faked. In order to verify these transactions and add them to the block, Blockchain users must crack at difficult hash function problems where they must encode a piece of data by using complex computing algorithms. Users earn a small percentage of a Bitcoin as a reward. These Blockchain members may be better described by the buzzword “miners.” This is the revolutionary system that is used by all forms of cryptocurrency.

Cryptocurrencies like Bitcoin are so vital because they solve the critical problems faced by mainstream currencies. The decentralized system expedites the transaction process without the onerous fees of banks. In addition, cryptocurrencies prove to be secure from hacking, fraud and double-spending due to the mathematical ingenuity of the Blockchain. At the same time, the Blockchain motivates miners to participate with monetary incentive. Many critics of the cryptocurrency system are hesitant to invest because they are not knowledgeable on the topic, and are wary about its risk. That is why it is necessary to become as educated as possible about cryptocurrencies because they are the future. To keep up with the business of the future, we need the currencies of the future. Bitcoin is one of hundreds of cryptocurrencies, so you can invest in the one that interests you.