Bitcoin, volatile Cryptocurrency

Bitcoin, volatile Cryptocurrency

Introduction

Technology today is taking the world by a storm with almost everything being transformed at a flip of technology. The most dynamic part of technology is the field of software engineering. Software technology is being used to create solutions by moving things from the real world to the virtual world. Software engineering has created solutions to very many hard life equations and made them easy by bringing simple solutions. The most recent technology is the introduction of the digital form of electronic currency as a medium of exchange.  This study discusses the technology of cryptocurrency which includes Bitcoin and explores how volatile this virtual form of medium exchange is and analyses the risks that are involved.

Bitcoin

Bitcoin is a form of virtual currency that was developed through software programming by the programmers to create a electronic form of medium of exchange.  It is given a particular known exchange rate that is meant to simulate an actual existing limited resource.   A Bitcoin can also be termed as a collection of electronic signatures that are stored in form of a digital “wallet” file that is shared among a group of users who use it as a form of medium exchange. This file is blockchain that carries the information about the Bitcoins including the record about the creation of new Bitcoins and the past transaction of these Bitcoins ( Berentsen & Fabian 4).   It is based on a network of its supporters and it depends on the technology of cryptograph for its stability (Turpin 336). It is in form a chain link that is shared from one user to another such that the system can authenticate its legitimacy when it is moved from one user to another. A Bitcoin is a monetary unit that is digital in nature and thus has got no physical representation. This value has the ability to be subdivided into smaller units of up to a hundred million “Satoshis”( Berentsen & Fabian 4).  Thus a Bitcoin is a purely electronic form of cash flow that is exchanged by people transacting their business online.

Bitcoin is considered the most successful cryptocurrency presently in the world of the digital currency.  Ever since its inception back in the year 2009, Bitcoin as the major cryptocurrency at that time gained popularity and has been in use ever since then. Even though there are some other cryptocurrencies that have been established including private cryptocurrencies, the Bitcoin remains the most utilized (Nian, Lam & David 6).  The processing of the Bitcoin entirely relies on the power of the internet for its transaction to be carried out since it is a purely online transaction. Thus, because it is only for online transaction, its market consumers are limit to only people who have access to internet.

Security of the Bitcoin network

The Bitcoin online system has been designed to ensure that the network is highly secure for the end users. The consumers have to be assured of the security of their investments from fraud which could lead to massive losses through cyber crime.   The system has nodes in the network that helps in the verification of the users any time that there are many users carrying out a transaction in a given duration (Turpin 339). Thus due to this security feature, one can only spend a Bitcoin once and any attempt to spend the Bitcoin the second time is invalidated. This eliminates the possibility of fraud through spending the already spent.

The users of the Bitcoin

According to the report from the European Central Bank report, it is estimated that there are over ten thousand Bitcoin users were utilizing Bitcoin who were sharing the 6.5 million Bitcoins. The number grew to approximately sixty thousand clients with 11.5 million Bitcoins in circulation.

Volatile cryptocurrency

A cryptocurrency can be referred to as medium of exchange that is digitally designed to utilize the cryptograph to facilitate transaction and can create additional currency units.  There has been an increase in the popularity of cryptocurrency in the recent past and some country’s governments including the United Kingdom are considering to incorporate of it in their systems to track the taxpayers (Jeffrey 1).  Bitcoin is one of the technologies utilizing cryptocurrency and has sold over 44,000 Bitcoins in the United States of America.

One common feature that is known about the cryptocurrencies is their volatility. The cryptocurrencies are found to be highly volatile as compared to conventional currencies. For instance, the Bitcoin which is considered as the most traded in the market is highly volatile that it cannot be relied upon for storage of value(Kumar & Christie 31). Since the supply of the Bitcoins is limited, any changes that occur in the supply chain and demand it directly reflects in its price.

Even though the cryptocurrencies have gained popularity, it is highly risky to transact such business. Because of the nature of the volatility of the Cryptocurrencies, the consumers of the cryptocurrencies such as the Bitcoin need to be aware of the risks involved in transacting such kind of business of cryptocurrencies (Kumar & Christie 31). In this business, the future of cryptocurrencies such as Bitcoin is always uncertain since there is no guarantee that they will continue functioning the same way and get valued all the time. There are other risks such as losses and theft. Thus it is important that consumers engaging in this kind of business be mindful of the assets that they invest in this business to minimize the number of risks.

Bitcoin has got a lot of scalability and governance issues which have led to its pronounced failure. This is because these unresolved scalability issues have resulted in wild volatility fees with other huge transaction backlogs (Kumar & Christie 32). The longevity of the source code for the Bitcoin is uncertain thus this form of cryptocurrency is largely vulnerable in the near future.

Conclusion

In conclusion, the recent advancements made in the software technology has led to the revolution of the concept of currency. It has resulted in the shift from the traditional currency into the virtual electronic currency. The cryptocurrency which utilizes the cryptography is a form of digital currency such as Bitcoin and it has in the recent past gained the popularity that several governments are considering to incorporate it trying to track the taxpayers and accept it as a formal medium of exchange. However, the cryptocurrency is highly volatile and thus it is not as reliable as a way of storing value. Because of its high volatility, the investment in cryptocurrency is vulnerable to future losses and consumers need to mind the amount of the investments that they put. If it is well managed and secured cryptocurrency is the future of the medium exchange.