Bitcoin is a new holy grail and anyone who had it a few years ago would have made a fortune. Bitcoin surfaced on the internet in 2011 when its value was only $0.93. In 2013 it hit a value of $900 and before April 2022 it was valued at $47,000. Bitcoin was born in 2008 when a pseudonymous person Satoshi Nakamoto published an article about this new currency and worked on it with a team. Mysteriously, he never met any members of the team and usually communicated via email. Shortly after the launch of bitcoin and its popularity among tech communities, founder Satoshi Nakamoto suddenly disappeared and no one knows who he was or where he went with the 2 million bitcoins he owns.
Bitcoin is a cryptocurrency based on blockchain technology and was created to act as a decentralized currency over which banks and government had no control and users could hide their identity while trading on the internet. Bitcoin is not the only cryptocurrency that exists today, but there are many such as Ethereum, Doge-Coin, Solana, etc. A person can redeem bitcoin through an e-wallet and can send or receive fractions of bitcoin to their e-wallet.
Blockchain technology is a shared and immutable ledger that facilitates the process of recording transactions in the corporate network. Recorded transactions are immutable, making them unalterable in the future. Every transaction on the blockchain is stored in a block and as such stays there forever on the network, making the system reliable and secure. Blockchain is also finding its use in creating smart contracts which are expected to be game changers in real estate ownership, supply chain management, storage of immutable records such as medical records, school records, property records , etc.
So far, bitcoin has failed to serve as a currency, country governments are concerned about its decentralized concept and hence the lack of regulation is vulnerable to serve as a source of funding for terrorist attacks, cyber crimes, drug trafficking, human trafficking and much more. Bitcoin also lacks the attributes of a normal currency which must act as a medium of exchange, store of value and unit of account. Instead of being used as a currency, bitcoin is now being used as an asset class to hedge against rising inflation. After the recent cryptocurrency crash in April this year, billions of dollars were lost indicating that this currency is highly volatile to be used as normal currency for every daily transaction. Other reasons that keep bitcoin from becoming mainstream are its lack of awareness among the masses, the large computing power it needs for mining, the power consumption for creating nodes to perform the transactions. Its volatility, its deregulation and its decentralization. In the future, cryptocurrencies could be used as normal currencies, but the question is still debatable.
Cryptocurrencies are often confused with blockchain technology rather than blockchain is a big area on which cryptocurrencies are built. Blockchain is also used to create NFTs (non-fungible tokens), smart contracts used in De-Fi (decentralized finance), immutable records and much more. Blockchain is the backbone of Web 3.0 which is the future of the Internet after Web 2.0. Blockchain is also used in the tokenization of physical and virtual assets, which in the future could give us the ability to own a fraction of NFTs, real estate, or anything of significant value.
Digital currency, on the other hand, is a centralized currency that replaces paper money printed by governments. Digital currency has a central control authority to initiate its digital currency and hence is controlled by an organization whereas cryptocurrencies are decentralized currencies where the control does not rest with any individual or organization.
Investors are adding bitcoin and other cryptocurrencies to their wallets due to inflation causing fake currencies to lose their value. Fiat currency is the money printed by the government that is not backed by gold or silver and when such amounts of currency are injected into the economy, it leads to inflation and sometimes hyperinflation. Experts are of the opinion that bitcoin can act as an inflation hedge like gold and silver.
Digital currencies, on the other hand, are digital variants of fiat currencies. Digital currencies are regulated and have central authority like government or central banks and are not based on cryptographic hashes like cryptocurrencies. RBI recently announced the launch of its own digital currency. Additionally, the Indian government recently taxed cryptocurrency assets at 30%. Digital currencies are considered stable compared to cryptocurrencies.
(The author is a technical writer and crypto-Web 3.0 developer. [email protected])