By Samuel Lay*
Bitcoin is something you have likely heard about in the past but perhaps you never quite understood what all the fuss was about.
You’ve read about all of the new venture capital backed companies that are starting up, the closure of the bitcoin-based Silk Road by the FBI or you’ve heard about its volatile but generally rising price.
It’s new, weird, confusing and a bit scary sounding but if Bitcoin succeeds, it is set to be every bit as revolutionary and disruptive as the internet or the printing press.
Bitcoin is a decentralised digital currency with its own built in payment system that allows you to send money like an email directly from person to person.
Anyone with internet access and a few seconds can set themselves up with a Bitcoin “wallet” and start receiving Bitcoin payments from anywhere in the world.
It doesn’t matter whether you are buying a coffee or a house, the payment will be sent instantly by the network and the sender will be charged maybe a few cents for the privilege, no permission needed or questions asked.
Bitcoin is not a company or any other single entity, it is a protocol more akin to the internet or the English language.
Records of all bitcoins and bitcoin transactions exist on a giant public ledger called the “block chain” which is stored on every single computer running the bitcoin network.
Bitcoin is a trustless system at it’s core.
Although bitcoins exist everywhere, only those with the “keys” are able to access them thanks to the high end encryption technology that secures the bitcoin network.
No need to trust a bank to store your money for you, you can keep the keys locked up safely on a flash drive or even memorised in your head.
The Bitcoin network never closes for the night or has bank holidays, it runs 24/7 in every country in the world.
Another important characteristic of Bitcoin is its limited supply, currently 12 million Bitcoins exist in the system out of a total 21 million Bitcoins that will ever exist.
Although there are 21 million Bitcoins that can ever exist, each Bitcoin can be divided in to 100,000,000 sub-units, plenty of units for the foreseeable future but that could even be increased at a later date.
This design makes Bitcoin the most finite currency that has ever existed, it cannot be created through credit expansion nor government money printing.
These qualities have given it the nickname of "digital gold", with many of the biggest advantages of precious metal based monies with all the added benefits of being a fully digital "frictionless" currency.
The implications of a currency that holds all of these properties is simply huge.
Think about the 2/3 of the worlds population that are effectively barred from the world economy because they don’t have a bank account and cannot apply for a credit card.
No longer will merchants have to give up a chunk of their profit margins to credit card companies nor will they have to fear chargebacks especially from the less trusted countries of the world.
People working abroad can send earnings back to their families in seconds without remittance companies taking a slice of the pie.
There are a lot of questions surrounding the future of Bitcoin and other competing "crypto-currencies" as the network continues to grow. Will the protocol be modified significantly in the future? Will some regulatory agencies crack down hard on Bitcoin? Will another crypto-currency competitor like Litecoin end up on top?
The only thing that is certain is that once people have tasted true monetary freedom and innovation, they’re not going to give it up easy.
The cat is out of the bag.
Samuel Lay is a co-organiser of the Auckland Bitcoin Meet-up.