Bitcoin – an illusionary wallet | Trade Samaritan

Bitcoin – an illusionary wallet

Bitcoin is an innovative, decentralized digital currency that enables instant payments to anyone, anywhere in the world. Bitcoins are finite and only 25 bitcoins can be mined every 10 minutes.

Bitcoin is a crypto-currency, so-called because it uses cryptography to control the creation and transfer of money. Bitcoin uses peer-to-peer technology to operate with no intermediary: transactions and money exchanges are carried out collectively by the network known as the bitcoin system. Bitcoin cannot be denominated into any form of currency, neither does it involve any intermediary. ‘Bitcoin’ is the unit of currency and can be directly exchanged from person to person. For tax purposes, bitcoin transaction is considered treated just like a barter transaction. Bitcoin can be compared to rare commodities like gold and silver, as bitcoins are finite in number. The threshold is 21 million to be mined till 2140.

Bitcoin was introduced as open source software in 2009 by a developer Satoshi Nakamoto. While bitcoin has been in existence for 5 years, it picked up on popularity only in late 2011. Historically, Bitcoin-Qt was the sole software that could facilitate bitcoin transactions, and it initially also supported mining. This feature was later removed because specialized mining software is more efficient. By May 2011 interest in Bitcoin was growing at a tremendous rate, so were concerns. Bitcoin is considered to be the most dangerous technological project because its existence and operation is not governed by any regulatory body.

Price of bitcoin has fluctuated widely in the years 2011 and 2013 

2011 : $0.32 – $32.00 – $2.00

2013 : $236.00 – $50.00

Shortly after prices peaked at $1,073, China introduced a prohibition on usage of bitcoin for purchase of merchandise. Banks and financial institutions in China are also  forbidden from participating in transactions denominated in bitcoins.

The daily average volume of bitcoin trading is around $289 million which is even more than Western Union transfers.

It is ironical that it is almost impossible to predict the intrinsic value of bitcoin but is often traded with an investment motive.

Commodity which neither has a tangible existence nor an intrinsic value is a more of an illusion triggered asset. It is a mere number added and subtracted from the digital wallet.

Trading procedure and mining

New bitcoins are generated by the network through the process of ‘mining’. Mining is similar to a continuous raffle draw. Bitcoins are usually stored in a digital wallet can be exchanged from one wallet to another at an individual level. Bitcoin exchanges have also been set up where units can be bought or sold on the open market at the going average rate, plus a fee that goes to the owner of the exchange. Bitcoin ATMs are being set up where users can trade cash for bitcoins for a fee. All transactions are secured using public-key encrypti on, a technique which underpins many online dealings. Transaction processing takes place on the basis of an algorithmic code that is auto generated and exchanged between the 2 computers involved in the transaction.

Risk and criticism

The security and storage is largely dependent on the computer in which the digital wallet is stored, the computer should never be subjected to virus or physical damage.

Off late bitcoin is trending for wrong reasons as lack of regulations and intermediary has made it susceptible to money laundering. Quite a few legal and criminal charges have been lodged.

The demand for Bitcoin has seen a spike of 5000 percent in 2013.

Bitcoin is often criticized by policy makers and regulatory bodies of several countries including the United States and China. Though it is not considered illegal in the United States. The fluctuations, security threats and money laundering issues encountered by bitcoin system surely makes one wonder and even believe that extreme digitization and automation may not necessarily be a boon to the mankind. Easily quantifiable and tangible commodities are most likely to provide a sustainable value. It will not be a surprise that bitcoins which unexpectedly gained popularity vanished into thin air just like its so called pseudonymous inventor Satoshi Nakamoto.