May 29, 2021

Is the Future of Business Bitcoin? (Part I)

Evan Stolpmann

BITCOIN IS THE FUTURE.

By now everyone reading this article will have heard the words "Bitcoin is the future" from a friend, a family member or the talking heads on our news stations. Bitcoin has reached a status of digital myth a dragon that has come out of the dark caves of the tech world and left a trail of awe in the minds of those who have been imprinted by the idea of a decentralized currency.

Bitcoin has certainly lived up to it's mythical status touting a $900Billion USD Market Capitalization, and with all great myth's, there is a deep complex narrative. Bitcoin is no exception. While everyone and there mother knows the name, Bitcoin not many understand why the great digital dragon was awoken from it's slumber.

In this blog I am going to dissect and expand on the dimensions of crypto currency that make it an intriguing case for the future of digital money.

What to understand when learning about Crypto Currencies

  • How the Banking System Operates
  • Blockchain Technology, Network Protocols & Proof of Work
  • Modern Monetary Theory, COVID-19 and the fear of inflation

When understanding the realm of digital currencies, like that of Bitcoin there are multiple dimensions in which crypto currencies find their edge above traditional forms of transactions.

Satoshi Nakomoto the anonymous creator/creators of Bitcoin defined blockchain as the solution to the peer-to-peer digital transaction problem. True peer-to-peer transactions on a global scale have only recently become reality through the massive ever evolving and dynamic networks of personal computers that span the globe.

Bitcoin's Global Transaction Network

Transactions in the modern era have historically filtered through the banks which act as intermediaries to all major transactions within a country or a society. These banks are necessary intermediaries as they control the money supply and ensure that the proper amount of money is circulating through the economy.

Banks prevent fraud as they act as a money ledger within society ensuring that an individual does not spend more money than he actually has and cannot introduce new money in vast quantities that would increase the supply of said money therefore devaluing it for all of those who own it.

Therefore, it is very important for modern economic societies to understand and have an ability to keep control of the circulation of their money in order to keep prices and the economy stable. While the bank has acted as societies ledger and money supplier, the banks now face new competition in the market of transactions, a market that has been truly monopolized for hundreds of years.

The Market of Transactions: The Banks vs. Bitcoins

Banks have controlled the flow of money whether that be through central bank monetary policies in which new money is introduced into the economy via loans and through the ledger system of transactions between individuals and organizations. Therefore, the bank acts as a crucial fulcrum within the flow of money within the economy.

In 2015 American banks made $34.6B in fees associated with deposit accounts. These fees are mandatory for everyone living in the modern world, as to interact with the economy legally one usually has to set up a bank account to make and record these transactions, this is more likely the larger the transactions one wishes to make are. Therefore in this system, revenue from bank fees are inelastic, meaning when banks raise fees consumer demand does not change this is due to a lack of competition.

Bitcoin's Inception

In 2008 a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was released on a public MIT license. This paper introduced the idea of bitcoin and blockchain. The system of peer-to-peer transaction technologies that uses the global computer networks to create an anti-fragile money system that would allow individuals to not only transact between one and other without using a banking ledger system, but also the capability to send money instantly from anywhere. Crypto Currencies being completely electronic has the ability to be sent over the block-chain to anywhere in the known universe that has connection to the bitcoin block-chain system. Therefore creating an exchange of value that transcends space and time allowing for instant and extremely economical transactions.

Gold and Dollars are physical items, these need to be sent somewhere in order for the owner to use those exchanges of value. This adds complications such as weight, distance and time it takes to arrive at the desired location. WHile the majority of dollars are already digital, however those digital dollars can exist only within the centralized system of the banking industry.

Bitcoin Transaction Life Cycle

Blockchain and the idea of decentralization is a major factor in the popularity Bitcoin has gained over the past decade. Blockchain has allowed this transaction to happen peer-to-peer and also has allowed for an open-source ledger in which transactions can be verified. While banks verify most transactions nowadays, Bitcoins transactions are available to anyone who chooses to connect there computers to the blockchain, therefore instilling a self-preserving mechanism within the block chain technology itself.

The legitimacy of transactions relies on the verification of others within the blockchain and those on the blockchain also hold bitcoin this most likely means they want it to retain it's value. Therefore the incentive is to ensure the validity of transactions because that is the only function of value bitcoin gives.

If there is mass manipulation of the ledger or an ability to Double-spend within Bitcoin this will render it useless, as the blockchain is no longer viable due to the compromise of the transaction transparency and function of the blockchain architecture.

Although Blockchain is a complex topic and I have barely scratched the surface into how the computational mathematics functions, I believe this introduction will get the reader thinking about the macro-societal ideas at which Bitcoin has found itself in the centre of.

This is concluding Part 1 of the Is the Future of Business Bitcoin?

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