In 1999, a man named Shawn Fanning, an 18-year old boy forever changed the music industry. He developed a service-Napster, and makes it possible to exchange music files among individuals, rather than buying expensive music CDs from record companies.
After Napster was sued in 2001, the business was shut down. However the concept of file-sharing continued to influence the internet, and BitTorrent(BT) and other peer-to-peer file sharing programs were developed; Napster was bought and still used as a legal music download service.
Napster is a perfect story to illustrate cryptocurrency—bitcoin’s present status, as they both utilize similar technology.
Bitcoin has become a popular investment worldwide, a bubble created by social media, and new tool for lesser financial regulation. It’s even a worldwide financial solution after the Cryprus banking disaster.
Like Napster, Bitcoin might fail, however its effect is far-reaching.
However, bitcoin’s price is the most interesting part, BitPay founder Tony Gallippi said. BitPay is a company processing bitcoin transactions. More importantly, bitcoin has made e-commerce more convenient and efficient.
Bitcoin is not the only digital currency, nor is it the only successful one: virtual world Second Life uses Linden Dollars as currency; the Chinese internet giant-Tencent allows users to use QQ coins to conduct transactions and Facebook has its own credits as well.
Bitcoin differs from other currencies (both online and offline) that it doesn’t have a single controlling authority and is not subject to any regulatory bodies.
On the contrary, this new monetary policy depends on mathematical algorithms. Users “mine” to get new bitcoins, which means through specifically designed equipment like ASICs to calculate complexalgorithms involved in bitcoin transactions, miners are rewarded bitcoins for their effort. Bitcoin itself is a series of numbers. Therefore, it’s a downright decentralized currency: a digital gold.
Bitcoin’s creator-Satoshi Nakamoto is a mysterious computer programmer. He created bitcoin in 2009 and then disappeared from the network. Bitcoin’s early adopters are mostly liberals who’re determined to get rid of governmental control or technology enthusiasts.
Silk Road is one of bitcoin’s most notorious usage—a hidden black market in the network where users are called “Tor users”(Tor is a hidden path on the internet, users can use tor to trade without leaving any traces). Drugs were bought and sold on Silk Road—and paid with bitcoin.
Some legal businesses started to accept bitcoin too. Social media Reddit, blogging software WordPress etc. BitPay is a company who processes bitcoin transactions and provides exchanges with the dollar.
Bitcoin’s transaction fees are much lower than credit card companies, especially for overseas transactions. However bitcoin transactions are irreversible, retailers are protected by this while consumers are reversed in using bitcoin because of this feature.
However, Coinbase co-founder Fred Ehrsam said,”Bitcoin has a long way to go before it becomes a mainstream currency.” Coinbase Inc. is a California based Bitcoin Exchange company. It offers online bitcoin wallet services whether users can store their bitcoins. He also added that bitcoin is difficult to acquire for the first time, and laborious to learn to use it.
Bitcoin may be stolen by hackers or lost, like the dollar bills in a washing machine. Over the past two years, several bitcoin exchanges experienced theft and hacking.
Bitcoin’s “Ripple” Effect
MtGox used to be one of the major bitcoin exchanges. Located in Tokyo and operated by two French citizens, MtGox handled about 80% of bitcoin exchanges. When the company filed for bankruptcy, bitcoin suffered an imminent blow.
In fact, the price fluctuations happened on April 10 was caused by MtGox software failure. Bitcoin’s legal status is also unclear. On March 18, the U.S. Financial Crimes Enforcement Network proposed regulation on bitcoin transactions. This also means that the government has investigated bitcoin’s legality.
Bitcoin expert Mike Hearn also said that bitcoin’s technical problems need to be overcome. As more users join the network, relevant data processing increases and this results in a decreased processing speed. it’s difficult to deploy a useful technique for repair: all users must upgrade their their current bitcoin wallet and mining software. Mr. Hearn worried that bitcoin’s developing too fast for its advantage.
The real threat also comes from competition. Bitcoin proponents have pointed out: unlike fiat currencies, bitcoin cannot be arbitrarily issued. This is true, however other crypto currencies are booming rapidly. Bitcoin’s alternatives are already in development, such as Litecoin.
Litecoin has gathered supporters and is traded among major exchanges now.
Another not-so-similar alternative is Ripple. Rippple’s creator, OpenCoin’s co-founder Chris Larsen, a Silicon Valley entrepreneur said that Ripple is easier to use than Bitcoin.
It takes 10 minutes to confirm a bitcoin transaction, while a Ripple transaction can be completed in a few seconds. Also Ripple has no mysterious beginning nor is it associated with criminal activities.
OpenCoin planned to released 100 billion Ripple coins to the public, and promised not to increase the number. OpenCoin planned to give away 75% of the issued coins. Any new user who registers at OpenCoin will be given 5 ripple coins; existing bitcoin users will receive more.
OpenCoin holds another 25% of the total circulation. This is to ensure stability of Ripple coins. Even when the company fails, other investors will receive higher value in each ripple coin. As of April 10, some of the leading venture capitalists (VC), including Andreessen Horowitz’s company have claimed to invest in OpenCoin.
If Ripple gains traction, greater financial market participants may join in. BitPay’s Gallippi said, Visa has developed internationally efficient payment systems. What happens if a company develops its own digital currency?
From this point, this bitcoin bubble might burst any time. But even if this happens, bitcoin has created a financial revolution just like Napster for music industry. Napster and other file-sharing services have prompted the music industry to adapt to online services like iTunes or Spotify.
Bitcoin’s value may collapse, and its users might switch to another virtual currency. However crypto currency is likely to stay and has a profound impact on the financial sector.