MoneyScience & Tech

Bitcoin – the Future of Currency?

Traditionally, currency has always been controlled by the state. The dollar was only worth how much people were willing to pay for it. It was as simple as that. What I just described was before the rise of a cryptocurrency (a digital form of currency that doesn’t operate with a central bank and is unaffiliated with any government) by the name of “Bitcoin”, the most popular non-minted currency present in our world.

There are two major differences that separate Bitcoin from all traditional currencies. 

Firstly, all Bitcoin transactions are done online as opposed to in-person or by mail, so it is very important to ensure your Bitcoins are secure inside your designated storage space.  

Secondly, it isn’t run by the state. In fact, it isn’t run by anyone, which means that security of Bitcoin is all the more important. If one’s Bitcoin supply were to be hacked, they would not be able to contact authorities to trace down the source of the illegal transaction. Bitcoin are one’s own responsibility. Transactions cannot be tracked because all Bitcoin transactions are stored on a public interface referred to as blockchain, but each transaction is anonymous. The only way that people could get a somewhat accurate picture of one’s identity would be to track their transaction patterns.

At this point, you know the basics of what Bitcoin is and how it differs from minted currencies, but how did the currency get to where it is today? Bitcoin hadn’t even been invented a decade ago, and now it is worth almost 1000$ US, so how is this possible?

The concept of Bitcoin was only established in 2007 by Mr. Satoshi Nakamoto.

Bitcoin - the Future of Currency?

Portrait of Satoshi Nakamoto (Image Source: Coin Desk)

In 2009, New Liberty Standard established an exchange rate for Bitcoin. US$1 was equal to 1309.03 BTC. This is the same year that Bitcoin hit the market.

In 2010, one BTC became equal to 0.08 US. In the same year, the market cap (the total value of all bitcoins in circulation around the globe) for BTC exceeded 1 million US$.

In 2011, Bitcoin really took off. The market cap reached 206 million US dollars, and one BTC had a value of 31.91 US$.

By 2013, the market cap for Bitcoin had surpassed 1 billion. In this year, many corporations, such as Match, Vimeo, Ask and OkCupid, began to accept Bitcoin as a legitimate currency to pay transactions.

As I am writing this article, one bitcoin is worth approximately $1345 USD, which is an all-time high for the currency (it is impossible to be sure because each transaction is processed instantly, resulting in the constant fluctuation of exchange rates).

While I simply showed the exchange rates of bitcoin as well as Bitcoin’s continuously expanding market cap, there is one area that has also constantly been progressing throughout this last decade: security. As you could imagine, security is a very important issue with all money, but especially with Bitcoin because a whole plethora of new security measures must be created, tested, and implemented. Even when I was describing the two major differences between bitcoin and minted currencies, the common theme of security was present. So, what security measures have been implemented to ensure the safety of Bitcoin use in the long-term, and have they been effective to date? More importantly, what threats does Bitcoin pose to financial security?

Firstly, cyber criminals are very inclined to hack Bitcoin storage spaces for two reasons. The value of bitcoin continues to go up at an exponential rate, which attracts cyber criminals due to the possibility for immense profit. As well, the fact that Bitcoin is entirely anonymous and completely online gives motive for hackers to try their luck at hacking Bitcoin. Most of this bitcoin theft occurs in the storage space for a given user’s bitcoin, or during transaction.

Scams are also a large threat in Bitcoin. Using anonymity as a cover to take part in illicit behavior is a common incentive to use Bitcoin. The most significant was the Ubitex scam, where people could trade in their bitcoin for cash. It seemed like a good plan until the founder disappeared with 1100 BTCs, which would now be worth 1,055,989 USD. As you can see, the overwhelming doubt impeding the world from using Bitcoin is whether we can still have safety with anonymity. 

All of these illegal behavior has been successful on the Bitcoin platform because the perpetrators take advantage of the fact that it is a digital currency, so all they need to do is take the money once. Essentially, their bitcoins, once purchased, are untraceable and are theirs to keep. As a result, no one would be able to bring that person to justice should they use their bitcoins in a way that is harmful to society. 

So, what has Bitcoin done to improve their security measures?

Firstly, Bitcoin offers Bitcoin wallets with the most recent anti-virus software and firewall protection available, and constantly try to update their security. They are also working on security measures that would enable 3rd party security software into all Bitcoin wallets, to prevent hacking. As well, they are hoping to encrypt all Bitcoin wallets to create more certainty that Bitcoin is secure by putting another roadblock in hackers’ ways. 

Ultimately, the main goal of Bitcoin is to create a screening process for the banks that are allowed to use the Bitcoin currency platform. Unknown and untrustworthy banks will be rejected from the Bitcoin platform much more in the coming years as an effort to reduce the amount of fraud in the system. To protect anonymity, a security measure called a “Bitcoin mixer” can be used to break the connection between the address of the sender and receiver of the transaction, so the sender’s identity is not revealed. While Bitcoin might never be 100% secure, by increasing screening to only accept clean banks into the system, the percentage of clean Bitcoin transactions will increase, as well.

Bitcoin - the Future of Currency?

Bitcoin Security (Image Source: Coin Outlet ATM)

However, as a customer using this product, you have some responsibilities, too. To ensure that your money stays safe, try storing your money in multiple different Bitcoin wallets. That way, if one gets hacked, you aren’t losing that much money. As well, to prevent hacking altogether, ensure you have encrypted all of your Bitcoin storage compartments. Wherever there is bitcoin, the storage location must be secured. Also, try to get 3rd party software to increase the amount of protection for each storage location. Finally, if you are still concerned about the lack of security of your bitcoin with all of the aforementioned protection measures, you can get Bitcoin keys. However, if you ever lose the password to your Bitcoin key, your bitcoin will be forever lost.

Finally, while it is true that many people are still reluctant to use cryptocurrency as a valid form of transaction, we must face the truth: Bitcoin is the future of money. Even some of the world’s most prominent innovators are marveling at the impact that Bitcoin has made around the globe since its’ creation in 2007! For example, Eric Schmidt, the CEO of Google, claims that “Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value”. In less than a decade, a concept was conceived, executed, and is currently being developed to ensure the best customer experience. 

Right now, Bitcoin is still in the development stages of accurate security measures to ensure safety and protection for users during transactions. At the rate that this whole new industry has been developing, I can’t imagine that added security measures will take long. Nonetheless, the hardest part of innovation is gaining the trust of the global market. 

A product is worth nothing if people are scared to use it. Bitcoin needs to develop their security to a point where their firewalls are so robust that nothing could go wrong. Finances are a very precious asset to all humans, and they need to trust that Bitcoin will not let them down. In the world of finances, there is no second chance. Alternatively, we cannot forget about what Bitcoin has done for our world. They have completely eradicated the waste of paper, labour and government funding for mints to print currencies and have, in their own way, united the world by creating a global currency in which one US dollar and one Indian dollar will have the exact same worth. 

Along this line, it is our responsibility to be progressive thinkers. Even with all the innovation present in our world, their products would have gotten nowhere if no one believed in them. At first, Apple almost failed because no one believed that computers would be the future. As a result, not many people would buy computers. The same principle is present with Bitcoin. Even if you don’t support an online, global currency, it wouldn’t hurt to take a chance, and you might find the true value of what it can do to improve the world of finance.

Author

Bitcoin - the Future of Currency?
Shaan is a Grade 10 student at Upper Canada College and writes research-driven pieces as well opinion pieces on issues that affect us today.