May 3, 2021
Bitcoin: The New Gold?
Tesla is the newest to join the batch of companies that now accepts Bitcoin as payment for its cars in the United States, while Uber and Mastercard have also announced that they plan to start accepting it soon.
With all this news around Bitcoin, now is the ideal time to pay attention to this cryptocurrency - here’s what you need to know.
What is a cryptocurrency?
A cryptocurrency is fundamentally a digital version of money that exists outside the control of a single person or national government. Unlike the US Dollar, the Euro, or the Pound, cryptocurrency has no central authority that manages and maintains its value. Instead, these duties are dispersed among the online users of a cryptocurrency.
Cryptocurrency can be used to buy regular goods and services – which may become more common – but right now, most people tend to invest in crypto just like you can with stocks. Although Bitcoin is the most popular cryptocurrency, there are countless other options as well: Ethereum, Litecoin, and Cardano are some alternatives.
How does Bitcoin work?
Anyone can buy Bitcoin from crypto exchange platforms like Coinbase, Coinmama, and Binance. Currently, the value of a single Bitcoin is more than 60 000 USD. When purchasing Bitcoin, you can buy a whole Bitcoin or else a share of it. Small portions of a Bitcoin are called ‘Satoshis’, after the pseudonym of its unknown inventor. One Satoshi is worth 0.00000001 Bitcoin – a single one-hundred-millionth.
Once purchased, these Bitcoins are stored in a digital wallet, which is either kept on the internet or on your computer. It is somewhat like having a virtual bank account. People can transfer Bitcoins from their digital wallet to someone else’s using an app or a website and the unique Bitcoin address of that person. These payments are processed and verified by volunteers who are called Bitcoin miners.
Bitcoin can be used to buy goods and services at platforms that accept this cryptocurrency as payment. Although Bitcoin is far from being a mainstream payment, big companies like Microsoft, Wikipedia, Express VPN, AT&T, and Shopify are currently accepting Bitcoin as payment from their customers. PayPal also recently joined this cryptocurrency bandwagon.
“This is the first time you can seamlessly use cryptocurrencies in the same way as a credit card or a debit card inside your PayPal wallet.”
What is Bitcoin mining?
Bitcoin mining is the process by which new Bitcoins are entered into circulation, and it’s also how transactions made by Bitcoin owners are verified. This mining process is performed by volunteers called ‘Bitcoin miners’ on high-powered computers with specialist software.
These Bitcoin miners solve increasingly complex computational math problems generated by Bitcoin’s source code. When these miners verify the transactions, they group them into ‘blocks.’ For each block they process, they are given a new Bitcoin as a way of compensation for them. Once these blocks are verified, miners add these records into an online ledger where the sender and recipients’ addresses and the amount transferred are included. This online ledger is called the ‘blockchain ledger’ and any entry in this ledger cannot be altered or deleted.
Benefits of Bitcoin
Since Bitcoin is not created or controlled by a bank or any state authority, it provides financial freedom for people. Bitcoin is free and open to use globally without the fear of censorship or any political influence.
International transactions with Bitcoin are much easier, as it’s no different from any transaction that happens locally. There are no international transaction fees, conversion rates, or red tape to navigate, unlike with credit or debit card payments.
Another major advantage of Bitcoin is that it has an in-built scarcity feature. When Satoshi Nakamoto created Bitcoin, design choices were made to effectively limit the number of Bitcoins that will ever exist to roughly 21 million. This finite number will likely support its long-term innate value, similar to how precious metals like gold hold their value high.
Downsides of Bitcoin
Being a digital currency has its inherent dangers, such as hacker attacks, deleted files, or loss of a password, which will result in funds being lost forever. Another drawback of Bitcoin is its standard policy for chargebacks or refunds. When someone conducts an online transaction through a credit card or online payment method, they’re entitled to get a refund if they’re subjected to transaction fraud. However, Bitcoin doesn’t offer this, and while Bitcoin miners are responsible for the verification process of a transaction, they are not qualified to decide their legitimacy.
One of the major downsides to Bitcoin is its carbon imprint. Bitcoin mining consumes a huge amount of energy and, according to Oxford University researchers, this process has the same carbon footprint as the entire country of Argentina. This has raised huge concerns about Bitcoin’s long-term sustainability, with a 2021 study indicating that Bitcoin mining ‘could potentially undermine global sustainable efforts’ – an added stressor that can only aggravate the worsening climate crisis. This is not to say traditional banking is a green endeavour, as many big banks and their board members continue to invest in fossil fuels, but the immense carbon emissions associated with Bitcoin mining could be devastating if the cryptocurrency becomes more mainstream.
Ultimately, the technology behind Bitcoin is incredibly innovative (almost sci-fi!), but our greatest concern at Casper Magazine is the cryptocurrency’s environmental impact. An international currency is an interesting premise and we’re all for financial freedom, but when it comes at the cost of our planet, it’s difficult to get behind.
If you liked this article, you might like our feature on Quantum Computing.