Bitcoin exists through blockchain, a type of database that maintains a digital record of transactions. Its structure is simple: individual records called blocks are linked together in a list called a chain. Transactions through cryptocurrencies such as bitcoin are recorded on these blocks. Some experts say bitcoin will never replace the dollar, citing various alternate currencies in history which never did. However, bitcoin’s value has been rising at an unprecedented rate, rising in price five-fold over the past 12 months. Meanwhile, the dollar has lost 9% of its value, making the significance of bitcoin towards our future unquestionable.
The advantages of a global currency controlled by a decentralised network of users are obvious. Such a currency won’t be directly dependent on central banking authorities or national governments. Secondly, while all currencies are volatile, bitcoin’s future looks promising given its generally upward trend, for example rapidly rising from less than $9,000 to about $57,000 in value from May 1st 2020-2021. Moreover, bitcoin’s source code is based on highly complex algorithms using advanced mathematical and computer engineering principles. This renders it virtually impossible to hack or manipulate. Other advantages include user anonymity through recording transactions while maintaining the privacy of individuals involved, and increasingly wide acceptance of bitcoin as a payment method.
Bitcoin’s greater liquidity relative to other cryptocurrencies allows users to retain maximum value when converting to traditional currencies. Furthermore, its transaction fees, generally under 1 per cent, is lower than that of other digital payment methods. The decentralisation also makes blockchain significantly harder to tamper with since an impossibly large amount of resources would be needed to stage a network-wide attack.
However, there are also challenges associated with bitcoin’s adoption. Bitcoin value is subject to humungous swings. Weekly shifts of up to 50% in both directions have been noted before. While the trend has largely been upwards, this is a risk users have to be willing to accept. Such sudden swings are unheard of in traditional currencies. Moreover, users could be exposed to scams and frauds specific to bitcoin, since being the most popular of cryptocurrencies makes it a target for criminals. Another one of its biggest drawbacks is the lack of standardized policy for chargebacks or refunds, like all credit card companies have. This means that users impacted by transaction fraud can’t request a refund and are simply helpless.
Hence while the future of bitcoin looks promising, it may take a long time before bitcoin becomes on par with traditional currencies like the US dollar. While some believe cryptocurrencies will replace traditional currencies in the future, a far more likely outcome is that they will continue to exist alongside traditional currencies, and will largely be viewed as an alternative investment rather than a stable currency.
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