Last week, I was having a chat with a group of young Engineers who were much worried as the “Bitcoin” price has fallen significantly. Some of them were investing or thinking to invest on Bitcoin which has become the de facto standard of cryptocurrencies.

The concept of Bitcoin was first introduced in 2009 by pseudonym Satoshi Nakamoto. Since then the new digital currency has gained its popularity and appreciated its value in an exponential rate especially during the latter part of 2017. Bitcoin's success has given birth to several competing cryptocurrencies, such as Litecoin, Ethereum, Namecoin and SwiftCoin. The market value of Bitcoin has fallen from USD 19,400 in mid December 2017 to USD 11 100 in January 2018 within a period of one month, so was the panic among this young crowd.

A cryptocurrency is a digital or virtual currency that uses cryptography for security. Unlike physical money, there are no coins or paper money officially produced as Bitcoins. No government entity decides how much and when to release it into the world. Bitcoins are created digitally by people with their computers. Bitcoins uses peer to peer technology. Everyone can take part in bitcoin transactions and it is truly decentralized. One of the interesting things about this virtual currency is that all transactions are stored and published publicly. The currency is traded via a vast peer-­to-­peer network throughout the globe without any bank involvement.

There are pros and cons of the Bitcoins. You can by- pass intermediary banks, avoid large processing fees, and avoid transaction delays. There is no fee to receive Bitcoins. Bitcoin transactions are irreversible. Hence most of the businesses would like Bitcoin compared to credit cards. It’s easy to set up a bitcoin wallet. Not much documentation needed in business as the information is transparent in the network.

Bitcoin is not backed up by physical assets- like gold or precious metals. Its value relies on the confidence people have in the virtual cryptocurrency. At first bitcoins had no value. Then, gradually, as more people became involved and began to give them value, their overall value increased. It's important to note that the value of a Bitcoin will vary, showing that the value really is what people are willing to spend on it. Sometimes it could lead to hype situations as well. The trustworthiness of the cryptocurrency network is enhanced with the increased number of smart people working on the needs of Bitcoin market.

“Digital Currency” is different and few steps ahead of “Digital Banking or Internet Banking”. The society has not fully embraced the Internet Banking yet. Some of us still need “human touch” and service aspect of our banker or the retailer. Hence we are yet to see how the new technologies like cryptocurrency address such different needs of individuals.

Eng. Indika Walpitage
Indika.walpitage@gmail.com