Bitcoin is …
“I am a big fan of Bitcoin. … Regulation of money supply needs to be depoliticized,” said former US vice president Al Gore. He is joined by Nassim Taleb, hedge fund manager and advisor to the International Monetary Fund: “Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.” But intentions are one thing. Another thing is if Bitcoin actually works? That’s the opinion of Microsoft founder Bill Gates and chairman of Google Eric Schmidt who have both called Bitcoin a “technological tour de force”.
What Bitcoin does
Bitcoin is a decentralized digital currency, payment system, and database not issued or controlled by a single central bank or government. Bitcoin is the most important invention since the internet and here are the five reasons why:
- For the first time in history, people in countries with corrupt legal systems, a poor enforcement of property rights, and catastrophic monetary policies can protect their resources from theft, nationalisation and hyperinflation. Bitcoin is already used for this purpose in Argentina.
- For the first time, online and physical stores can accept electronic payments without paying several percent in fees to credt card monopolies. And Bitcoin is the ultimate tool in the battle against the extensive credit card fraud underworld, costing merchants hundreds of billions of dollars every year according to studies.
- For the first time, regular people can store their money safely without making them available for the risky speculation of others in a highly leveraged banking system. Bitcoin is financial decentralization in a world, where banks otherwise are merged, centralized, nationalized, and gets increasingly too-big-to-fail.
- For the first time any person, big and small, no matter if he is in Europe, Argentina, or China, can pay any other person on the planet instantly without middlemen and pay a fee of just a few cents. As Milton Friedman said in 1999 when he predicted Bitcoin: “The one thing that’s missing [on the internet], but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.”
- The most important things that Bitcoin will bring are probably yet to be conceived. Bitcoin is currently at the same stage as the internet was in the beginning of the 90’s. Back then the internet was used solely by university professors and corporate researchers who amazingly were able to send text messages to each other through a text-based computer terminal. No one could image that the internet technology could give rise to applications such as Facebook and YouTube which would be used by everyone and their grandmothers.
In the same way, Bitcoin entrepreneurs are currently working around the clock on innovative solutions to common problems. Bitcoin has been called “programmable money.” This means that certain types of contracts which has so far been enforced using laws can now be enforced using software – for instance wills and escrows. Furthermore, the Bitcoin system can be used to create a decentralized database, where ownership to each share – or any other asset – can be sent just as easily using the Bitcoin system as regular Bitcoin currency units with all the same advantages: Very low cost, very fast, without middlemen, and in a way that everyone can verify is correct.
The Bitcoin software is open source, which means that Bitcoin is a completely open system to be scrutinized and reviewed by anyone who can read the programming language. And so hundreds of the best computer and security specialists in the world have approved of the security and robustness of the Bitcoin system.
The software also specifies the monetary policy of Bitcoin. It can be mathematically determined how many Bitcoins will exist at any point in time in the future. Tyler Winklevoss, founder of the precursor to Facebook, said of his investment in Bitcoin: “We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” When investors and fund managers no longer need to guess which monetary policy will be employed tomorrow or in five years they can allocate their capital more effectively.
Why Microsoft, Dell, and Hungry accept Bitcoin payments
Government authorities around the world has generally been receptive to Bitcoin. The U.S. has issued official guidelines on how to run a Bitcoin exchange. Germany has recognized Bitcoin as “private money.” Denmark, Canada, Finland, Sweden, Norway, Netherlands, United Kingdom, France, Belgium, and Australia has officially announced that Bitcoin is completely legal. Large companies such as Microsoft and Dell accepts Bitcoin payments for their goods and services, as well as merchant aggregators such as Hungry.dk where you can order take away food from 900 restaurants and pay in Bitcoin. Non-profit organisations such as Save The Children also accepts Bitcoin payments. Some of the reasons cited by these organisations is the low-cost and fraud-free payment environment provided by Bitcoin.
If you haven’t already tried using Bitcoin, now is a great time. But don’t take my word for it. Nobel Price nominee Leon Louw said: “Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.”
This article was written by Lasse Birk Olesen, Co-founder and Chief Product Officer at Coinify
Image credits: Jason Benjamin, Coinify
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