Bitcoin and Blockchain – a layman’s overview
Disclaimer: Finteq solutions are designed to work with traditional payment systems enabling financial institutions to process transactions more effectively. Although our systems are able to process Bitcoin transactions, we have not delivered any projects aligned to this to date. This article is purely for the interest of our followers. We do not endorse any of the web sites mentioned herein, but provide the links for additional information purposes.
Just take a look at Google’s Search Insights and you will see how South African interest in Bitcoin and Blockchain start to rise from the second quarter 2016.
But Bitcoin is not something new, and the first paper published on the Internet on this subject was posted in November 2008. The founder (or possibly founders) go by the name Satoshi Nakamoto and it is still unclear if this is the name of an individual or a group of people.
Bitcoin is a decentralized digital currency (or cryptocurrency). It is not the only cryptocurrency available today, but it is the most popular to date. A few similar concepts emerged prior to Bitcoin, but it appears they may have been ahead of their time and they did not gain the same mass appeal that Bitcoin has.
The reason for its growing popularity boils down to the promise of being fast and cheap to use, with the added benefit of security.
It is controversial for several reasons, not least of which is its anonymity which can enable fraud and ‘underground’ activities.
So how does it all work?
The main premise is that Bitcoin enables an online payment exchange, similar to a cash exchange. In other words, transactions do not require processing by central banking authorities or national governments.
Like any other currency, the price of bitcoin changes over time, so you need to check exchange rates before buying.
Bitcoin exchanges are available for you to purchase from, or you could do direct exchanges with other people via marketplaces.
When you buy Bitcoins, you would obviously need a place to store them and this is done using a ‘wallet’. Wallets are available for download from the www and you may find yourself spoiled for choice. Don’t let the name deceive you, the wallet tends to act more like a bank account than a traditional wallet.
For an excellent read about buying Bitcoins, please see: http://www.coindesk.com/information/how-can-i-buy-bitcoins/
It is not difficult to see then that there would be a need for some sort of central control to manage and audit transactions being made.
Enter Blockchain technology, described by Don and Alex Tapscott (authors of Blockchain Revolution) as “ an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
This is not a technology that you need to fully comprehend or understand. What you need to understand is that you would need a bitcoin wallet and know how to use it. After all, not everyone knows how their Smartphone works, they just know how to use it and blockchain is no different. If however, you would like to know more about blockchain technology, we recommend you take a look at http://blockgeeks.com/guides/what-is-blockchain-technology/.
Where can I spend my Bitcoins?
There are some merchants who accept Bitcoins and this base is likely to grow however, Bitcoins are not widely accepted.
What else do I need to know?
- In an attempt to ensure tracking of transactions, banks could discourage merchants who wish to use Bitcoins.
- There are no guarantees:
- Bitcoin values fluctuate constantly. This can cause havoc with transactions in terms of calculating refunds for returns etc.
- Generally speaking, you have no power to reverse a transaction should you make a purchase but not receive the goods.
- If there is some sort of data corruption on your wallet, you will lose your Bitcoins and these cannot be recovered.
- Similarly, if you store your wallet on your laptop computer and your hard drive fails, your Bitcoins are lost.
This topic is far greater than the introductory points mentioned in this blog so if you are interested in learning more, please do make use of the links provided in this article. Also remember that your experience will be different in different countries, so familiarise yourself with the country-specific information that applies to you.
We hope this has provided a basic understanding of the topic and encourage you to share additional information in the comments below.