Bitcoin breakdown

Breaking down Bitcoin

* Originally posted in BellMTS Business Hub *

Throughout the last quarter of 2017 and into this year, the commerce world was abuzz with Bitcoin. The cryptocurrency made massive headlines as its commodity price skyrocketed. Now, every Bitcoin put together would be worth about US $110 billion — and that puts a lot of eyes on this digital currency.

As a result, the lucky few who invested in it early — about a decade ago — made a lot of money. There were even overnight millionaires as a result of its meteoric rise. Even with all the press and notoriety, many still don’t have a firm grasp on what Bitcoin really is and how it is used.


Sending a Bitcoin

Created by an unknown software developer in 2009, Bitcoin is the first, most stable and most well-known cryptocurrency — along with having the greatest market capitalization. But how do you actually use it?

In short, Bitcoin is a digital currency that is not controlled by a single person — it is decentralized. It’s not printed or held in the physical world, but rather, the entire cryptocurrency exists entirely in digital software transactions produced by people and businesses.

Sending a Bitcoin is simple, and you only need two things to do it — your Bitcoin address and a private key. Much like a safe, your Bitcoin address is a unique hold for your currency and only you have the ability to unlock it with your “key.”

To send a Bitcoin to someone else, you unlock your safe, select the amount that you’d like to send to that person’s unique specified address, and sign off on the transaction. Once this is completed, the transaction goes into the blockchain and is eventually solved — meaning your coins are sent to the recipient.


The blockchain

Whenever a Bitcoin moves or is sent from one person to another (or from one holding to another), a record of this movement is held on what is known as the blockchain. Think of this as a publicly-available and automatically verified ledger for every movement of the currency.

This means that accuracy in the movement of money is always possible and cannot be corrupted by bad actors. It also brings other advantages, particularly in the world of banking.


Bitcoin and banking — the new kid in town

Don’t get fooled by the fact that this currency not physical — it can still be incredibly valuable and fairly easily traded.

A single Bitcoin was worth about eight-hundredths of a cent back in 2009 and reached an all-time high of nearly US $20,000 in December 2017. Though this valuation fluctuates — sometimes very dramatically — and it’s now worth about US $6,431.

That’s a hefty price tag to get in on the cryptocurrency action, however, fractions of Bitcoins are also available for those who wish to be a part of the market.

And when it comes to the relationship between banking and Bitcoin, some interesting reverberations may occur. In short, cryptocurrency’s decentralization could result in a diminished role of the middleman in finance. It also has a few other advantages over the current banking system:

  • Lower fees: there are no merchant fees with Bitcoin and cryptocurrency as of yet. Though some services do charge transfer fees, these are often lower than those associated with credit cards. Whether those merchant fees are paid by businesses or the customer, a lowered amount of merchant fees should lead to more money in their pocket.
  • Faster transactions: as opposed to the holds that banks sometimes put on fiat currency when making transfers, the digitally held and verified blockchain mean large transfers can happen in minutes and often seconds.
  • Security: Unlike credit cards used online, Bitcoin doesn’t require you to input any ‘secret’ information such as your card’s expiry date or CSV number. The public address for your Bitcoin safe is always available, but only you can unlock it (as long as you keep your private key private, that is).


At the speed that cryptocurrency continues to grow, this disruption is very much on bank’s radars. And there is another group that is closely monitoring its development: governments.


The next chapter — governance and regulation

In certain ways, Bitcoin and other cryptocurrencies can be seen as behaving similarly to an unregulated stock market. There are aspects of this that can be beneficial to a country, but also very risky — especially for those new to the market.

The stock market and trading have very strong rules in place to ensure that people are not taken advantage of — with massive penalties for breaking these rules. This is not yet the case with cryptocurrency, but it may soon be.

South Korea and China have already stepped in to begin regulating cryptocurrency. In some cases, they are creating their own coins to be a part of it, alongside establishing regulatory groups within their securities commissions so that everyone plays by the rules.

Governments are also paying attention to the potential for money laundering, which could happen behind the scenes of cryptocurrency due to the anonymity involved.

Then there’s the discussion around taxation. In Canada, rules are being established and developed in this area, wherein transactions and activity may be seen as capital gains, business income or both — with the related taxation required. Suffice to say, further Bitcoin regulation is on the horizon.


There’s much to be learned about the world of Bitcoin and cryptocurrency, and there’s even more evolution to come. More than 1000 different types of cryptocurrency are now available, and with several businesses venturing into it themselves, it’s an industry that will continue to have an impact on virtually everyone.

* Originally posted in BellMTS Business Hub *