Everyone is talking about Bitcoin. It is everywhere. In fact, Bitcoin is a payment system, a cryptocurrency which is being used worldwide and known as the first digital currency that is decentralized as it works without a single administrator or a central bank. The network is configured peer-to-peer as the transaction is done between users by the use of cryptography with no intermediary involved. The transactions are stored in a distributed ledger known as a blockchain and network nodes verify these transactions. I
t was in August 2008 when bitcoin.org was registered and in the same year, Satoshi Nakamoto authored a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System which was sent to cryptography mailing list. The bitcoin software was executed as an open source code and was released in January 2009 when Nakamoto mined the first block on the chain for 50 bitcoins’ reward, called genesis block. Amazingly, the identity of Nakamoto remains unknown till today.
The bitcoin works the same way as the paper money with some notable differences. The primary form of the currency is data which is traded online, by the use of wallet software, peer-to-peer or as an online service. It can be used to book hotel, shop online, order pizza or coffee, buy ticket or buy games. The bitcoin can be exchanged by the services, products or goods with people who use it or through mining. By February 2015, more than 100,000 vendors and merchants were using bitcoin as a payment. In 2017, the currency has jumped up exponentially and around 6million users are recorded using cryptocurrency wallet out of which majority used bitcoin as a payment according to the research done recently.
Nonetheless, in recent days, the use of bitcoin has seen drastic increase due to many features. International payments are being done because it is easy and cheap. There are no regulations associated with it and no country involved. There is no central bank but its demand is boosting up day by day. In addition, there is no credit card fees and due to this reason, bitcoin is getting popular in small enterprises. Besides, there are majority of individuals all over the world who are purchasing it as an investment hoping to get benefitted from the high value. The money transferred between two individuals through bitcoin cannot be traced and identity of receiver and sender also remains unknown that’s the reason it is becoming a popular choice for transferring funds amongst criminals.
If we look at how it works, we come to know that this digital currency is stored in a digital wallet which exists on user’s computer or in cloud. This wallet allows the user to receive or send bitcoin, save money or pay for services or goods. But importantly, unlike other money and bank accounts, FDIC does not insure bitcoin money.
There are many weaknesses and drawbacks of bitcoin currency but there are two major ones; first, if wallet is stored in cloud, it’s server can be hacked and companies can flee with clients’ bitcoin. A second weakness is if it is stored on computer, it can be deleted accidentally or by viruses and whole data can be gone.
The biggest strength of bitcoin is that there is no capital control of it. No government controls or places limits on the amount of money which can be taken out or withdrawn from the country.
Though it is hard to identify one factor which helped the bitcoin to maintain its meteoric rise but there are number of global events which conspired the perfect storm for bitcoin rise.
In 2013, in order to bail out the banking institutions from collapse, the Cyprus government limited the ATM withdrawals to 260 euro per day and later on this amount was squeezed to 100 Euro. This decision made a drastic impact on individual’s ability to transfer funds abroad. Later in 2015, when Greek government sensed the emerging threat of Euro leaving, it also limited the use of ATM withdrawals and in addition it blocked all international card transactions. This governmental decision left Greeks citizen destitute who remained unable to access their funds abroad. Soon after the Cyprus and Greece made capital controls on their banking institutions, the price of bitcoin surged because it was the digital and unstoppable way to eschew capital controls. It easily allowed Cypriots and Greeks to transfer their assets and money abroad.
Undoubtedly, avoiding capital control became one of the sole reason for bitcoin to come into mainstream in Greece as evident from bitcoin ATMs which are soon to be an ordinary ATM in Greece whereas it is still a novel idea in rest of the world. In China, bitcoin is still enduring popularity where Government has restricted the money at $50,000 to be taken out from the country which is a serious problem for majority of ultra-rich Chinese.
Moreover, Bitcoin received a strong boost as Donald Trump was elected as the US President. His proposal on taxing money transfer from USA to Mexico led to a surge in interest in cryptocurrency. In April 2017, Japan started accepting tokens as a lawful currency and Russia also shown its intention to regulate the currency in 2018 in order to fight money laundering.
These events led to the surge of bitcoin value which has witnessed two thousand percent increase in the year 2017. The value tracker of cryptocurrency Coindesk placed the value of one bitcoin equivalent to $997.69. on January 1, 2017. On December 2017, the value reached $19,343.
Many countries like Australia, Japan and China are taking serious notes about lack of control over the virtual currency and are in process of making regulations.
The future of bitcoin is uncertain due to lack of consumer protection rights but many hope that it will be used for buying and selling of every stuff and most importantly illegal transfer of money will get most use of it.
*Zaheema Iqbal is a student of International Relations at National Defense University, Islamabad. Her areas of interest are radicalization, extremism, terrorism, cyber security, cyber warfare, cyber terrorism, cyber threats, critical infrastructure, cyber vulnerabilities and can be reached at [email protected]