Before we venture to explore what is so unique about it, let us first define what is cryptography. For those uninitiated, it is the art of creating codes that serve as guarantees for communications systems or information. Cryptography is used in many different fields from secret code cracking for governments and corporations to protecting our online privacy from hackers.
When people first hear about bitcoins, they usually picture some computer code that prevents them from spending too much money with it. But this is far from the truth. It is not the currency that is at fault here, but rather the cryptography behind it. Unlike traditional currencies that have to be backed by a central government and are subject to sudden changes in monetary supply, bitcoins are a digital currency that has no such restraints.
This means that you can spend your bitcoins on anything that you want. You can buy real estate, luxury items, or even pay for services rendered online. The power to leverage potential uses of this virtual currency has created a unique opportunity for investors and entrepreneurs to profit off of it without having to hold physical copies of it. In fact, the only thing you need in order to start trading in bitcoins is an internet connection.
Another feature of bitcoins is that they are stored in a decentralized manner unlike conventional money that goes through a bank. This is known as peer to peer technology or P2P technology. As you can imagine, this type of technology brings together users who participate in trades through the Internet instead of through conventional financial institutions like banks. Transactions are processed through P2P technology without the intervention of any third party which greatly simplifies the process of transaction processing.
Because of these factors, transactions in bitcoins are more secure compared to conventional payments. Furthermore, they are free from any form of hidden fees. Because the entire transaction occurs over the Internet, it is possible to reduce transaction fees by transmitting the transaction fees in the form of lower transaction fees to the register instead of paying them upfront. One disadvantage of bitcoins is that it does not have a fixed exchange rate because the supply and demand of it are still fluctuating. However, this weakness does not affect transactions because a trader may always be able to estimate the value of a particular unit of bitcoins based on the current exchange rate.
One of the drawbacks of bitcoins is that it does not have a built in mechanism for ensuring its sustainability as a viable global financial system replacement. The lack of a built in mechanism results in increased volatility of the market and makes traditional currencies vulnerable to attack from hackers and other individuals who have an ill intention. In addition, this weakness also means that there is no ceiling on the amount of transaction fees that a user may charge which makes the market more susceptible to exploitation by high price speculators.
Despite the weaknesses of bitcoins, it is estimated that the network will be able to survive for up to two years at least once the problem of high power usage and volatility are addressed. At the time of writing this article, the network hashrate is around the level of a one-month average and the network transaction fees levied on the average are around ten percent above the average of ten thousand dollars per day. This indicates that the network is stable and will not likely experience any problems as long as the factors mentioned are avoided. However, if these factors are not addressed, then it is possible that the use of bitcoins could come under pressure and the use of conventional currencies could increase.
Since the introduction of a new block by bitcoin developers called the “Bitcoin XT” the viability of the bitcoin system has been put into question. The new block was developed to give users greater control over the system by giving them the ability to decide to upgrade the existing software or develop a new block if they wish to do so. If the existing network was to adapt to the new “XT” block then it would potentially create a fork in the network and most likely cause irrevocable damage to the interests of both users and miners. On the other hand, if users and miners do decide to upgrade their software then this may prevent the need for a hard fork which could create an even larger split between the old and new block, with one group controlling the network’s fate.