Insight Is Bitcoin

Currency of the future?

The Bitcoin, a digital currency, has been around for over ten years. It may be the currency of the future. But why was the Bitcoin actually created?

The Bitcoin, a digital currency, has been around for over ten years. Everyone should be able to use this coin without being dependent on an intermediary. But is this currency future-proof? A digital currency faces four problems: there may be no counterfeit currency in circulation, the number of new coins created must be finite, no one may be allowed to monitor a payment, and, finally, there may be no intermediaries who can stop transactions. Our current financial system already solves two of these problems, but not the other two. That is why the Bitcoin was invented.

The current financial system: centralized control Below is a schematic representation of the organization of our current payment systems. Each system, for example your bank, is controlled centrally. In the network, one party (the bank) controls all transactions that take place. If that party disappears, the system will no longer function. This financial system solves two out of four, but unfortunately not all, problems.

Financial system solution

No counterfeit money

Thanks to the control by a centralized party, money can only be spent once.

Financial system problem

Privacy

The centralized party always monitors a transaction. In this system, there is no privacy within a transaction between two points.

The centralized party has control over how much money is printed. If a lot of money was printed, that money would not have value.

The centralized party in this system is involved in every transaction. It must be completely reliable.

Bitcoin: trusting the network Digital currencies use blockchains. This is where all points of the network are interconnected. Each point is a user/computer in the network. Transactions are approved by each point. This eliminates the need for a centralized party and the network will continue to function if a user/computer is lost. The Bitcoin solves all four problems, but also creates new ones, so the question is whether this is really the currency of the future.

Bitcoin solution

All transactions that have ever been made can be found in the system. If a coin is sent twice, the one that was sent first counts.

No counterfeit money Privacy

Limited issue

Bitcoin problem

The number of digital coins has been set at 21 million. Because of this, it is not possible to create an infinite number of new coins.

No intermediaries

Very slow 51% attack Only 4 to 7 transactions can be done per second, much fewer than in the centralized system. This makes this network much slower. The network uses a lot of energy. This is due to the computing power behind the system. For each transaction, a new address is created by the recipient. This makes the recipient untraceable.

There is no longer a third party involved in transactions. There is no centralized party in the network.

In order to make changes in the network, 51% of users must agree. If the majority of the network ends up in the wrong hands, the possibility of counterfeiting exists.

The computers that perform all these calculations (the computers of all points) use electric energy. One transaction uses as much energy as 30 households in one day.