Crypto Academy Season 3 Beginners' course - Task 3: Bitcoin, Cryptocurrencies, Public chains.
What Is Bitcoin and what was the Aim Behind Bitcoin Invention? Is Cryptocurrency Good For A Business To accept As Payment? Why?
To understand what is Bitcoin , we should understand three important parameters related to the Bitcoin. First one is nature of Bitcoin, second is the system that runs the Bitcoin and the third is the regulatory authority of the Bitcoin. For example, as an Indian, if I talk about Indian currency,( Indian Rupee) . Rupee is a physical currency governed by Reeserve Bank of India and and is operated lvia our traditional banking systems.
Let's try to define bitcoin based on same parameters . We can say that, Bitcoin is a decentralized digital currency or asset run on blockchain. By saying that it is decentralized asset, we mean that there is no Central or regulatory authority to control the production, distribution or any other parameter of bitcoin regulation . By saying that it the digital currency , we mean that unlike physical currencies of different countries of the world, that can be printed on papers, bitcoin cannot be printed on papers.Neither can we hold it in our hands or store it in our wallets, nor can we withdraw it from bank or ATMs. It is all about digits recorded on wallets . So when we say that, we have a bitcoin, we actually do not have anything but we have an entry of numbers on a bitcoin digital wallet.
Blockchain is a public ledger system that records bitcoin transactions. When a bitcoin transaction is performed between two users (P2P) , the transaction is verified before recording on the public blockchain by nodes owned by miners. Nodes are the hardware devices like computers, ASICs, GPUs with a high computational power and miners refer to the owners of nodes. Bitcoin transactions are secured with the help of a mathematical function known as cryptographic hash. Each transaction has a unique hash linked to it and computational power of the nodes is used to find out the correct hash. The node that first finds the correct hash verifiy the transaction and distribute the transaction across all the nodes involved in the blockchain. After independent verification by all the nodes, the transaction is recorded and distributed across this public ledger. In this way, blockchain represents the highly secure and transparent record Keeping system of Bitcoin.
We are all aware about Global crash in economy that happened in 2008 and wiped away funds of mamy stakeholders. Just one year after the Global slow down, Bitcoin was invented in with the aim of eliminating dependency on the intermediaries and create an independent P2P payment system.
Cryptocurrency as payment system in business.
There are many advantages and disadvantages linked to acceptance of bitcoin as a payment system in business. Looking at pros and cons, I am convinced that it has more pros than cons. So I would say, it's good to accept Bitcoin as a payment system. Now let's move on to the pros and cons.
Pros of Bitcoin in Bussiness as payment.
Transparent system
Transactions recorded on blockchain are immutable and non-editable which means that transactions once recorded cannot be manipulated or deleted from the system. Therefore there is no scope for manipulating the financial data in business once recorded. As for security is concerned , Bitcoin is secured by cryptography which is a highly secure system.
Global P2P transaction
With the adoption of Bitcoin as a payment system , global P2P transactions can be performed at a single click of a button, contrary to our traditional financial system where interstate transactions take hours or days to execute and has numerous checks and balances. So in this way, we will be able to save our time as well as our resources.
Low transaction fee
As businesses involve transaction of huge amount of money. The transaction fee with our traditional financial systems is very high. With the incorporation of Bitcoin, transaction fee will be lowered especially on interstate or transcontinental transactions.
24x7 service
Since between eliminates our dependency on intermediaries like banks, we need not bother about bank holidays or the working hours of the banking
officials. We can perform transactions anytime and anywhere.
Quality service
With the incorporation of bitcoin in business, the quality of of service delivery will be improved as Bitcoin transactions are carried out on numerous nodes and it's not possible that all the nodes may be down at any particular point of time, so we can say that it is an example of 100% up time system. Facing server down problems in banks is a common problem as of now.
Efficient record keeping
Majority of the records in our traditional business system are maintained on handwritten papers and recently computers have been put in use. But be it manual record maintenance or on computer record maintenance, none of the two systems can compete with the blockchain. Blockchain is an efficient replacement of present record keeping system in every sector of the business.
Limitless transactions
By limitless transactions , i mean limit on transaction amount . We know that our banks have set their own rules and regulations on the transfer amount and which when compared with the amount that can be transferred via Bitcoin is negligibly small. So with the help of Bitcoin, huge amount of fumd transfer can be made and therefore that would boost the business.
Cons of Bitcoin as payment system
Nothing is free of limitations. So is not the Bitcoin in bussiness. Although positives outnumber negative points but still negatives do exist.
Abuse potential
Because of anonymous nature of transactions, there is high abuse potential as has been seen earlier with the Silk road scam of Bitcoin. Being a decentralized system that keeps identify anonymous, user cannot be tracked . Some miscreants have used it for illegal purposes in the past and therefore has chances of being used for similar purposes in future.
Non repudiation
As there is no governing authority and because of anonymous nature, transactions once made cannot be reversed. If any transaction is made to the wrong address, there is no way to get funds back unless the receiver is willing to pay payback. If you look at our traditional banking systems, in case we make transaction to any wrong account number , we can track the user identity and can request pay back or can make complaint to the banking authorities to negotiate the issue. Negotiation is not possible in case of Bitcoin.
Mining related issues
Bitcoin mining is linked to certain adverse effects like high energy conversion, high maintenance cost , expensive hardware and environmental issues like noise pollution and release of harmful carbon particles into the external environment. With adoption of Bitcoin in business, these factors will flare up more. However , these problems have been addressed by other cryptocurrencies.
Tax evasion
There is no regulatory authority to control Bitcoin transactions, therefore there are no taxing mechanism in place as of now. So some saavyn businessman would use it as a means of tax evasion and evasion of tax is not good for society.
Please note that the topic has been made bitcoin centric but it is applicable to other crypto currencies too.
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