With so much hype and speculation leading up to the launch of the new digital currency called “Bitcoins”, the value of the coin has become a topic of interest. What is driving the value of the new digital asset? Will investors get their fair share of this phenomenal new market? And how will the future of the digital currency affect the world we live in? We’ll take a look at some of these questions in this article.
With any discussion of the future of computing power and the Internet, you’ll inevitably come across one of two terms, “Mining” and “Full Control”. What does this have to do with the bitcoins’ value? With most countries that allow for it, you could purchase clothes and groceries just like you would with your national currency without fear of fraudulent chargebacks. Mining is separated from governments and most central banks.
The way it works is simple. Individuals or companies with computers all over the world participate in what is called “mining”. They use their computers to compute algorithms to find possible solutions to complex problems. When they find solutions, they transfer the information to a network of servers where the solution is verified. Once the solution is verified, the transaction fees are collected by the miners and it’s their obligation to pass the solution to everyone else on the network, called “peer-to-peer” transactions. This transaction fees go into the pool of available computing power owned by all the miners.
Because of its characteristic and the way it functions, “Bitcoins” have always had a difficult time gaining the trust of individuals and businesses. Many questioned its legitimacy and even feared that it might lead to “rigorous and extensive” misuse of its properties by people wishing to take control of the network. However, after careful analysis of the system, several factors have been revealed that indicate that there may be some problems with the way in which bitcoins function, but nothing conclusive.
First, it has been found that bitcoins have certain drawbacks when compared with traditional forms of currency mining. Unlike normal mines, no man-made equipment is needed to conduct the mining process. Therefore, it creates a problem for businesses wishing to control the mining activity. They may wish to have full control of the transaction process, but if no one controls the actual mining process, they will not be able to control who gets to own and utilize the bitcoins generated.
Another issue identified concerns the maintenance of the validity of the chain. bitcoins are “decentralized” because every computer accesses the entire block chain. When miners start generating blocks, they do so immediately, without waiting for the confirmation of previous transactions. Because of this, it is possible for miners to double-spend, which is considered to be fraudulent activity.
By contrast, because users control the mining procedure and determine which transactions occur first through the use of their private key, it is impossible for a single entity to control the flow of transactions through the block chain. The developers of the bitcoin software have taken measures to prevent this kind of abuse through the use of “proof of work” systems. By requiring that a user provide evidence of their ownership before initiating any transactions, it ensures that only legitimate transactions will be executed.
As mentioned earlier, miners all over the world contribute to the maintenance of the integrity of the network. This also ensures that the network is sustainable over the long term. This means that no single actor can monopolize the generation of new bitcoins. The only way for this to occur is if there is an inherent benefit that cannot be derived from standard commercial activities. One such benefit is the profit created through the specialized hardware mined by the miners.