By Gaurav Pradhan
World was thrilled with the new online currency system – Bitcoin which started recently and becoming popular in a very short period of time. Things changed dramatically as Bitcoin crashed in last week of February, 2014.
Genesis of Bitcoin
Bitcoin, new currency which was created by an unknown person with an alias name Satoshi Nakamoto. This currency came into being without any bank or middle men. Claiming the advantages of anonymity and no transactions charges, it gained some attention among users. It was a preferred currency when it came to international transactions. Small businesses seemed interested because of no credit card fees. Some people held the currency as an investment, hoping a rise in its value.
How does Bitcoin Work
Bitcoin is based on a software known as ‘Bitcoin Wallet’. This is basically creating an address for transactions to take place through computer or mobile. You can create multiple addresses and share it with friends and people. But there is a limitation – Bitcoin addresses should be used only once. That means for every transaction, you will need a new bitcoin transfer address.
Accounting is completely based on Block Chain. It can be explained as a shared public ledger which is the backbone of the whole Bitcoin network. Bitcoin wallets can very well do the calculation related to balances and verification for new transfer transactions. Organizing and securing transactions in block chain are done with cryptography.
Processing of waiting transactions is carried out by Mining which is a distributed consensus system used to confirm waiting transactions, including it into block chain. This helps in a maintaining the consensus with different computers connected with Bitcoin by managing the transactions in a chronological order, protecting the neutrality of the network. Every transaction is packed in a Block and verified under strict cryptographic rules, which doesn’t allow any future modification or loss of control.
Why did Bitcoin Fail
Bitcoin started off well with so much of expectations, but it failed miserably by the end of 2014. There are many reasons for failure, some of which are explained as follows:
Bitcoin as a currency, was very susceptible to exchange rate fluctuations. This volatility was because it was not backed up by any asset base, which would provide some value to one bitcoin. Because of absence of stability & intrinsic value, Bitcoin failed as a currency.
2. Still Early Days
Bitcoin was a technology, which was way ahead compared to the present day transaction system. It needed much more careful valuation. Only facilitating transaction through a currency is not a solution. It should also create and store value for the users. These were the unanswered questions which led to the downfall of Bitcoin.
3. Platform for Illegal transactions
Bitcoin got used for money laundering and black market purchases, because of its significant advantages. Regulations went hard on it, because it started harming the financial as well as public system. Bitcoin was deemed illegal and restricted in many countries.
Failure of Bitcoin is a lesson for many future systems who believe in online currency. We hope that the same mistakes are not repeated, and they come up with an efficient online currency in the future.
(Author is a Management student of IIM Bangalore having an experience in Manufacturing Industry, Follow On Twitter @GauravToYou)
Bitcoin explained in layman’s terms – NDTV Profit – http://profit.ndtv.com/news/your-money/article-bitcoin-explained-in-laymans-terms-376029
What is Bitcoin? – CNN Money – http://money.cnn.com/infographic/technology/what-is-bitcoin/
Top 5 Stories of 2014 – Social Media Trend – https://www.socialmediatrend.in/specials/top-5-stories-of-2014-social-media-trend/