Bitcoin is a new Holy Grail and anyone who owned it a few years ago would have made a fortune. Bitcoin emerged on the internet in 2011 when its value was only $ 0.93. In 2013 it reached a value of $ 900, and before April 2022 it was valued at $ 47,000. Bitcoin was born in 2008 when a pseudonym Satoshi Nakamoto published an article on this new currency and worked on it with a team. Mysteriously, he never met any team member and usually communicated via email. Shortly after the launch of bitcoin and its popularity among tech communities, founder Satoshi Nakamoto suddenly passed away and no one knows who he was or where he went with the 2 million bitcoins he owns.
Bitcoin is a cryptocurrency based on blockchain technology and was created to act as a decentralized currency over which banks and the government had no control and users could hide their identity while trading on the internet. Bitcoin is not the only cryptocurrency that exists today, but there are many such as Ethereum, Doge-Coin, Solana, etc. A person can redeem bitcoins via an e-wallet and can send or receive fractions of bitcoins on their e-wallet.
Blockchain technology is a shared and immutable ledger that facilitates the process of recording transactions in the corporate network. Recorded transactions are immutable, which makes them unalterable in the future. Every transaction on the blockchain is stored in a block and as such remains there forever on the network, making the system reliable and secure. Blockchain is also finding its use in creating smart contracts that are supposed to change the rules of the game in real estate property, supply chain management, archiving of immutable records such as medical records, school records, property records, etc.
So far, bitcoin has failed to act as a currency, national governments are concerned about its decentralized concept and therefore the lack of regulation is vulnerable to serve as a source of funding for terrorist attacks, cybercrime, drug trafficking, human trafficking. and so on . Bitcoin also lacks the attributes of a regular currency that must serve as a medium of exchange, store of value, and unit of account. Instead of being used as a currency, bitcoin is now being used as an asset class to hedge against rising inflation. After the recent cryptocurrency crash in April of this year, billions of dollars have been lost, indicating that this currency is highly volatile to use as a regular currency for every daily transaction. Other reasons that prevent bitcoin from going mainstream are its lack of awareness among the masses, the large computing power it needs for mining, the consumption of energy to create nodes to execute transactions. Its volatility, its deregulation and its decentralization. In the future, cryptocurrencies could be used as regular currencies, but the question is still moot.
Cryptocurrencies are often confused with blockchain technology rather than blockchain being a large area on which cryptocurrencies are built. Blockchain is also used to create NFTs (non-fungible tokens), smart contracts used in De-Fi (decentralized finance), immutable records, and much more. Blockchain is the backbone of Web 3.0 which is the future of the Internet after Web 2.0. Blockchain is also used in the tokenization of physical and virtual assets, which in the future could give us the ability to own a fraction of NFTs, real estate or anything of significant value.
Digital currency, on the other hand, is a centralized currency that replaces government-printed paper money. The digital currency has a central controlling authority to initiate its digital currency and therefore is controlled by an organization while cryptocurrencies are decentralized currencies where the control rests with no individual or organization.
Investors are adding bitcoin and other cryptocurrencies to their wallets due to inflation causing fake currencies to lose value. Fiat currency is the government printed currency that is not backed by gold or silver and when such amounts of currency are injected into the economy, it leads to inflation and sometimes hyperinflation. Experts are of the opinion that bitcoin can act as a hedge against inflation like gold and silver.
Digital currencies, on the other hand, are digital variants of fiat currencies. Digital currencies are regulated and have central authority like government or central banks and don’t rely on cryptographic hashes like cryptocurrencies. RBI recently announced the launch of its own digital currency. Additionally, the Indian government recently taxed cryptocurrency assets at 30%. Digital currencies are considered stable relative to cryptocurrencies.
(The author is a technical writer and a developer of cryptocurrency 3.0. firstname.lastname@example.org)