Introduction to Bitcoin

Isaac Tan

What is Bitcoin

Bitcoin is a form of currency that was created in 2009. It is the world’s most common and well-known cryptocurrency. Bitcoin is decentralised, this means that no one has control over Bitcoin as there is no central authority. Furthermore, bitcoin also relies on a cryptographic system known as Bitcoin mining. Bitcoin relies on volunteers to process transactions. Their computers race to solve a mathematical puzzle once every 10 minutes. Finding a solution processes a batch of transactions and whoever gets there first is rewarded with some Bitcoin. Bitcoin has achieved large-scale acceptance and popularity by promising its users a fully decentralized and low-cost virtual currency system.

Why use Bitcoin?

Anonymity is an important feature of cryptocurrency. Anonymity is probably one of the properties that have been key to the success of the currency deployment. In order to open accounts at banks, banks will often require key confidential information such as proof of residence, driver's license, or other forms of registration. However, Bitcoin bypasses all of that and does not demand any information in order to buy and sell. This makes it particularly attractive to individuals unwilling to share their personal information.

The Cons of Bitcoin

However, the average time it takes to mine a block is 10 minutes, so you would expect a transaction to take around an hour on average. This would be way too long for consumers and the general public, as transactions have to be carried out all the time, with an average transaction time of 6 transactions per second, it definitely would not be able to catch up. Therefore, infrastructure would need to change and the method of the transaction would need to be overhauled to ensure a faster transfer process.

Then there is the aspect of crime and Bitcoin. Bitcoin has become the currency of choice for cybercriminals. Its distinctive characteristics of decentralization and pseudo-anonymity are also attractive to criminal actors in general, and yet Bitcoin has been assessed as representing only a low money laundering risk. The main reason why criminals are using Bitcoin as a medium of transaction is due to its pseudonymous nature which allows them to conduct a criminal activity without being discovered. Although at first, this anonymity may have been key to Bitcoins growth it is now inhibiting it from becoming mainstream as this may lead to further government regulations on the cryptocurrency.

Conclusion

Overall, Bitcoin has its ups and downs with no guarantees that your money is kept safe. However successful it has been so far, the recent large drop in value highlights the main problem that it has, that it inherently has no value attached. This cryptocurrency can only go so far without proper government regulation and intervention, and due to its speculative nature it is inadvisable that people invest too much into it without knowing the risks taken.

Bibliography

Kulkarni, Sneha. “Bitcoin: Pros and Cons of Investing in World’s Largest Cryptocurrency.” https://www.goodreturns.in/, 2021. https://www.goodreturns.in/classroom/pros-and-cons-of-investing-in-bitcoin-advantages-and-disadvantages-of-bitcoin-cryptocurrency/articlecontent-pf19270-1209500.html. (Accessed May 21, 2022).

@CMEGroup. “What Is Bitcoin? - CME Group,” 2022. https://www.cmegroup.com/education/courses/introduction-to-bitcoin/what-is-bitcoin.html. (Accessed May 21, 2022).

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