Unless you were born recently, the concept of how we pay for things has been settled for most of our lives. We use dollars. If you live in Europe, you use Euros. All we have known is government backed currencies since the beginning of the twentieth century. And we believed that the idea of money was settled.
In 2009, however, a mystery figure named Satoshi Nakamoto launched Bitcoin. In the beginning, it was viewed as an oddity for cypherpunks. But now, smart people are questioning the idea of money itself. Is the way we pay for good services changing? Do you and your business need to understand Bitcoin? Probably.
Bitcoin
Bitcoin is a cryptocurrency. Because it was the first of its kind, people are familiar with it—even if they aren’t sure what it is. There are thousands of different cryptocurrencies. Bitcoin is the most important currency because it was the first to launch and also because its supply is limited by its code. At some point, Bitcoin will be capped at 21 million coins, which is a stark contrast to government currencies that continue to grow in supply when new money is printed.
Some of the attention it receives is how volatile its value fluctuates. At times, a single Bitcoin is the equivalent of tens of thousands of U.S. dollars. In March 2020, it was below $4,000 a coin. It traded above $60,000 earlier this year. If the stock market makes you nervous, Bitcoin’s volatility will make you ill.
Ledgers, Blockchain & Decentralization
The public ledger is the heart of Bitcoin. If you were to pay someone with a Bitcoin, that transaction gets documented. Every transaction with Bitcoin is on this public ledger. The details of the transaction are given a unique code. The code gets added to the ledger, and all the transactions appear in order as they occurred. This is called a blockchain.
The ledger prevents people from fraudulently creating and using fake currency.
Bitcoin is decentralized. No government or organization controls it. The dollar is printed and backed by the U.S. government, but Bitcoin does not work like that.
What is Mining?
“Mining” is a term associated with Bitcoin, and it brings a lot of questions. Recall the transactions and codes that get added to the blockchain. These codes involve extraordinarily intricate and complex mathematical problems.
By handling and solving transactions on the Bitcoin blockchain, miners are rewarded with payments in Bitcoin and with transaction fees. Due to the rise in the value of Bitcoin, this has attracted more and more miners to pledge computer power to the Bitcoin network, which in turn increases its functionality and security. Bitcoin has been the subject of many attacks by hackers, but none have been successful to date.
Is It Real?
Decades ago, the dollar was backed by gold, but that is no longer the case. The heart of the U.S. dollar is trust. If you do work for someone and they pay you in U.S. dollars, you know you can go anywhere and exchange that paper for other goods and services.
Can cryptocurrency gain that level of trust? It has earned hundreds of millions of users, and millions of merchants accept it. The future of cryptocurrency depends on the level of trust people put into it. Many experts compare Bitcoin and cryptocurrency today to the internet in the mid-1990s: it’s just getting started. As more and more institutional investors and financial institutions embrace Bitcoin, it may be on its way to gain trust as an independent, non-government backed currency.
We strongly encourage you to become aware of how cryptocurrency might impact you and your business, and we are happy to share resources to help you educate yourself on this important development.
Neve Webb
Whether you are in the early stages of building a startup company or are preparing to merge with another business, Neve Webb can meet your legal needs. Contact us to schedule a consultation. Let our creative solutions take your business into tomorrow.
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