A Closer Look at Cryptocurrency and Blockchain Transactions
Bitcoin is a currency that has been dominating headlines in financial news,
and due to the uncertainty regarding this currency, a closer look is
warranted.
Bitcoin is a cryptocurrency—a digital currency that is secured through codes
that cannot be read unless you have a key (cryptography). Although bitcoin
isn’t the only cryptocurrency, it is the most popular.
Bitcoin is global and is not controlled by any central government. An
algorithm developed by bitcoin founders makes the determination of how many
bitcoins are produced and how many will be added to the economy each year.
Bitcoin is 100 percent reliant on blockchain technology, meaning that without
blockchain, bitcoin would not exist.
Blockchain transactions are grouped in blocks and chained together through
cryptography, using technology that creates a decentralized and unalterable
ledger, or database, of all transactions. This means that anyone can see the
database and add to it; however, no one can change it. Bitcoin transactions
are, therefore, static and will never disappear.
Blockchain technology is the reason bitcoin transactions occur much faster
than transactions involving traditional currency. The immutable nature of
blockchain eliminates the need for a middleman to determine whether a
transaction is legitimate, which, in turn, eliminates the need for involvement
of banks or other financial institutions.
Bitcoin is not without concern and one major concern is its volatility.
While bitcoin is like gold and other precious metals, it is rare. In fact,
after 2140, the bitcoin algorithm expires. This means that no more will be
added to the economy.
Since inception, bitcoin has provided a bumpy ride for investors. Industry
experts have noted that its bitcoin trades are six times more volatile than the
S&P 500. Driving this volatility are concerns about government regulations
and disagreements within the bitcoin community.
Another concern is the false sense of security created by the blockchain,
making investors overly-confident and opening themselves up to theft. Hackers
are likely to find a way to penetrate an unsecured blockchain and steal
bitcoin. Security is key in protecting the blockchain and, as a result, the
bitcoin.
This technology is creating quite a splash in the financial services pool.
For additional information on bitcoin and cryptocurrency, check out WebCE’s
course Initial Coin Offerings.
View Courses