Where is Bitcoin Headed?
Many watchers of the cryptocurrency boom are gleefully waiting for the inevitable crash. There is a prevailing notion among government traditionalists and institutional financiers that cryptocurrency is a passing fad. Nothing is backing it. There is no full faith and credit of the United States backing Bitcoin, like the dollars, so that means that it cannot survive.
But it is likely that that is a short sighted and under informed view. There were many naysayers that were convinced that a network of academic computers would never amount to much more than the hobby world of geeks and nerds.
But it turned out that the World Wide Web eventually upended most of business as we know it and created new paradigms for how the world shares and trades information.
Understanding Bitcoin
With cryptocurrencies exploding across the financial industry, you want to be sure that you understand everything about the new sector, before you start sinking any money into it.
Whether you have a Bitcoin wallet or a bunch of Ethereum on your phone, you want to be sure you understand whole market and what pitfalls you may run into.
Bitcoin is hot right now, but there are many other currencies and other systems based on the blockchain that could have a significant impact on the world in the next decade.
The BlockChain
The blockchain is, at its core, a decentralized ledger that exists on many different computers at once. The integrity of the ledger is maintained by the community and the fact that copies of the ledger exist on each hard drive throughout the network.
That means that each transaction needs to be legitimate in order to be added to the chain of blocks that is copied on each computer. You cannot fake a Bitcoin or and blockchain transaction.
Bad actors will get rejected by the community, because fake blocks will not match the rest of the chain. There is an inherent validity to the system.
Mining
But how are all the members of the community incentivized to do the work to verify all the transactions? Well, the work of verifying the transactions is commonly called mining, because the process results in the computer users being rewarded with Bitcoin after completing a transaction.
The process involves solving a series of complex cryptographic math problems that all the blocks in the chain to be connected. That work is done with the expectation of getting new Bitcoin.
Only 21 million Bitcoin will be created, as set forth by the white paper that started the Bitcoin community. That artificial limit create the scarcity necessary to help the cryptocurrency hold its value.
Although Bitcoin is the first cryptocurrency, which helps explain its value, it is not the only one. There are many others that purport to be competitors and it remains to be seen which currency will become the dominant form of digital cash.
It stands to reason that the global online community could survive with many cryptocurrencies in existence. The foreign exchange market is the largest financial markets in the entire world. Lots of countries have their own currency, which has been sustainable from a world economic perspective for the entirety of human history. There is no reason that the same situation will not happen with digital currency.
