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Bitcoin: A Technological & Economic Game Changer?

It's not a technology that you'll find designed into the latest gadget, but it's a technology that might help you buy that latest gadget. It's Bitcoin and it's hot. To see how hot, just check out the chart below:

The value of a bitcoin versus the U.S. dollar has skyrocketed this year as interest has increased in the digital currency.

The value of a bitcoin versus the U.S. dollar has skyrocketed this year as interest has increased in the digital currency.

So what exactly is Bitcoin? It's been described in many ways – “open-source P2P money,” “digital money,” “crypto-currency,” and even “gold 2.0.” And it is all of those — an open-source, peer-to-peer, electronic money and payment network that uses cryptographic technology for both “frictionless” secure transaction processing and the “mining” of bitcoins themselves. See this short video (1:44) for a quick overview.

On the transaction processing side, users transfer payments between Bitcoin “wallets,” which store cryptographically generated addresses. A private key is used to digitally sign transactions and confirm that the transaction is coming from the owner of the wallet as well as help secure a transaction from being tampered with after the fact. Every transaction is broadcast and validated by other computers on the network.

“Mining” is the activity by which bitcoins are created and is intentionally designed to require significant computer processing resources to solve algorithms, resulting in the creation of new blocks in a block chain. This process is designed to maintain a consistent block creation rate and thus control the increase in supply of bitcoins. (The rate of Bitcoin creation is designed to halve every four years, until a total of 21 million bitcoins have been created.)

Originally, Bitcoin mining was performed on standard CPUs until it was found that high-end graphics cards were more efficient, given the massive parallel architecture of some graphical processing units. Later this evolved to FPGA-based Bitcoin mining hardware, which used devices like Xilinx's Spartan-6 and Altera's Stratix III FPGAs. More recently, dedicated-ASIC-based Bitcoin mining hardware (such as the Monarch 600-GigaHash Bitcoin Mining Card) have become the norm and are much more efficient for the power they consume. And here power efficiency is key — the more efficient a device, the more profitable.

As Bitcoin mining has become more competitive — with more miners competing for a limited supply of blocks — it is now an activity that is only feasible for mining pools. Here, multiple users join together to mine Bitcoins, then split the block reward based on the contributed processing power. For more on Bitcoin, see the original paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” or visit the Bitcoin wiki.

This article originally appeared on EDN as part of its Hot Technologies: Looking ahead to 2014 feature, where EDN editors examine some of the hot trends and technologies in 2013 that promise to shape technology news in 2014 and beyond.

13 comments on “Bitcoin: A Technological & Economic Game Changer?

  1. Ariella
    December 11, 2013

    The skyrocketing values of the digital currency have brought it to the public's attention in the past few weeks. But some have been watching it almost since its inception in 2009. Some still cling to a stereotype, reiterated by Nicholas Weaver, a senior staff researcher at theInternational Computer Science Institute a couple of months ago, that it's just something for  “Crypto-Anarchist-Libertarian-Cave-Dwelling-Goldbugs.” In his view, those people are willing to pay a premium for using their favorite currency. Others use bitcoins for “selling things that cannot be processed using credit cards, namely gambling and drugs.”

    However, there are some who see ths kind of currency as potentially moving money into the digital age and taking currency into the 21st century. One of those is Alan Safiah, CEO of ZipZap. He argues that the digital currency can be the means of improving life for people in Third World countries. Credit cards currently charge 2-3 percent plus 30 cents per transaction, which hinders those in developing nations from offering low-priced wares online. Bitcoin, which he envisions as forming part of charitable organizations' arsenal for poverty eradication, could help people help themselves.As he says: 

    You just have to just give them the tools, so they can be successful. Cost-effective microtransactions enabled by the digital currency would make it possible even for people in impoverished regions to reach customers online. As e-commerce will bring them income, they would have money they need for adequate food, clean water, and medical care. They also would gain enough prosperity in time to become customers to businesses in other countries. Instead of giving aid to them, they'll be selling them stuff.

     

  2. Daniel
    December 12, 2013

    “On the transaction processing side, users transfer payments between Bitcoin “wallets,” which store cryptographically generated addresses. A private key is used to digitally sign transactions and confirm that the transaction is coming from the owner of the wallet as well as help secure a transaction from being tampered with after the fact.”

    Rich, I read that the usage of bitcoin are increasing rapidly for the last two quarters and its safer for online transactions. At the same time, some of the countries are not allowing such online transactions too.

  3. Daniel
    December 12, 2013

    “Credit cards currently charge 2-3 percent plus 30 cents per transaction, which hinders those in developing nations from offering low-priced wares online.”

    Ariella, I think in future credit cards are also going to charge for recharging Bitcoin account using Credit cards. The major advantage is it can use, wherever the places Credit card or other online bank payments are accepted.

  4. Ariella
    December 13, 2013

    @Jacob I don't think it's going to quite go in that direction, as Bitcoin really positions itself as an electronic payment system that does not rely on credit cards or PayPal and so is free of those transactional fees. It is certainly not yet at the point of being accepted everywhere credit or debit cards are. Also, as it is positioned as a currency, it wouldn't be sold with a credit card any more than dollars or euros would. Taking money that way is considered a cash advance, and that entails its own fees. 

  5. prabhakar_deosthali
    December 14, 2013

    If Bitcoin is going to be like any other currency , except being in digital form,  there will be some conversion rate when someone tries to buy it , say by paying in dollars or in euros. So some currency exchange fee will automatically get charged.

  6. Ariella
    December 14, 2013

    @prabhakar_desothali It's different from all the standard currencies, though, because it's not linked to any borders the way euros, pounds, and dollars are. Theoretically, it costs nothing on top of the actual exchange rate to add bitcoins to your Bitcoin wallet, though the services for acquiring and paying in bitcoin likely tack on a small fee. Another digitial currency that focuses on the system of payment with no processing fees or delays more than on the currency unit itself is Ripple.

  7. Daniel
    December 15, 2013

    “I don't think it's going to quite go in that direction, as Bitcoin really positions itself as an electronic payment system that does not rely on credit cards or PayPal and so is free of those transactional fees.”

    Ariella, then how you purchase Bitcoinc. Some way of exchange has to happen to acquire Bitcoins, am I right.

  8. SunitaT
    February 22, 2014

    @prabhakar_deosthaliExactly my point. There will be associated conversion rates, maybe with a different economic structure altogether. But, how do they propose prosperity with such an establishment?

  9. rpellny
    February 24, 2014

    @tirlapur, the following link offers an excellent overview of Bitcoin that may help answer your question(s):

    Why Bitcoin Matters

  10. t.alex
    August 19, 2014

    Bitcoin is definitely an economic game changer if our economy system start to implement more regulation and make it more official for everyone to use. Goverment can definitely not printing money to “improve” our economy with bitcoins. Better security Bitcoin can definitely proves with its technology. Economic game changer: still a question to a lot of people but i believe in the next 10 years Bitcoin will prove its future.

     

  11. Ashu001
    November 22, 2014

    Alex,

    You are slightly mistaken here.

    Bitcoin is the enemy of Regulation as we say ;its the Anti-Fiat currency and enables ordinary people to circumvent currency controls.

     

  12. ahdand
    November 23, 2014

    @tech4people: Well any proof on that matter ? I also heard about it but did not find any source which explains about it legally 

  13. Ashu001
    November 23, 2014

    Nimantha,

    Don't bother searching around for “Legal ” Proofs when it comes to Bitcoins.

    When you download a Software for use on your Smartphone;Do you check whatever the Terms and Conditions are?

    Do you go through all of them in Details?

    Similarly(&I think this is the best example),when you use Open Source Software like Firefox or OpenOffice or OpenSSL or TOR do you really check through all the Source Code as well as Terms & Conditions before using it?

    Similar to these Software products ,Bitcoin is also Open Source and focusses on Peer-Peer Lending.

    The Beauty is because no Single Entitity has control over the System of Currency;You can't enforce controls of any sort on it ;apart from maybe making it illegal to transact in Bitcoins.

    This feature-set of Bitcoins is particularly useful in countries where the Governments have successfully destroyed the Value of their Currencies(causing Ordinary Citizens to suffer through Hyper-inflation) to fulfill their nefarious needs.

    One of the best and most recent examples are Argentina,Venezuela and U.

    You can read more about that story here-blogs.wsj.com/moneybeat/2014/06/25/bitbeat-why-bitcoins-scoring-goals-in-argentina/

    From that article-

    To Mike Abridello, a U.S. expatriate who runs the Prodeo Hotel & Lounge in the Buenos Aires's hipster neighborhood of Palermo Soho, the bitcoins he receives from BitPagos gives him a valuable third option with which to navigate the country's confusing regulations and bifurcated currency markets. “Right now if you're working in Argentina, bitcoin just operationally offers you a cash flow solution that's much more efficient,” he said.

    BitPagos CEO Sebastian Serrano said some clients prefer to hold bitcoins. “In countries with high inflation, like in Argentina, which is right now having a serious issue, it's a way to hedge against inflation,” he says.

    There are other great articles as well from Bloomberg as well as Forbes on this topic(Just Google for Argentina uses bitcoins to escape Currency Controls).

     

     

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