Know your Blockchain from your Bitcoin
Does crypto-currency have you confused?
As the latest development in a series of fintech developments with the potential of revolutionising the payments and transfer industry, Bitcoins and Blockchains are set to become increasingly relevant to consumers. WeÔÇÖve put together a handy guide to help you navigate these new innovations.
Bitcoin burst came into the financial scene in 2008 as a digital currency. ItÔÇÖs safe, secure and encrypted, and can be used to buy goods and services wherever sellers accept it. The currency is gaining ground, with some restaurants in the UAE beginning to accept it for purchases and delivery. The currency has a floating exchange rate against real world currencies. In December 2016, for instance, a Bitcoin was worth around USD 767.
As a dynamic departure from the norm, Bitcoin doesnÔÇÖt exist as notes or physical coins. Neither does it have a central bank to issue the ÔÇ£coinsÔÇØ and control their availability. So, what happens instead? Bitcoin transactions are maintained in decentralised digital ledgers called ÔÇ£BlockchainsÔÇØ. These Blockchains are publicly available, and openly shared. Each time a Bitcoin transaction is conducted, a new ÔÇ£blockÔÇØ is added to the record chain.
ItÔÇÖs this mechanism what makes Bitcoin so hard to hack or attack ÔÇô there are thousands of copies of the blockchain all over the Internet ÔÇô and all of them are verified with each other before transactions can be updated. Blockchains are what keep Bitcoin secure. Fraud is very difficult because there are multiple copies of the Blockchain, and every transaction is recorded publicly and can be viewed by everyone. The Blockchain is also the reason why Bitcoins canÔÇÖt simply be copied and counterfeited - because it would be impossible to compromise the thousands of ledgers that exist globally.
In short, Bitcoins and Blockchains are part of the same ecosystem. One is the currency, and the other is the name given to the public ledgers that maintain a record of transactions and establish an exchange rate.
The future is bright for digital currencies. Banks, venture capitalists, and large international firms have started to invest in Bitcoins, and where they go, the rest of the world will follow. However, itÔÇÖs worth noting that virtual currencies such as Bitcoin also pose brand new regulatory and compliance challenges for authorities because they are location agnostic and operate peer-to-peer without any involvement from central banks.