Techblog
What are cryptocurrencies and Bitcoin?
More and more consumers are choosing bitcoins to pay for transactions online. But what are they and how do they work? Find out more about bitcoins, blockchain and cryptocurrency.
Before we get started in the schematics of bitcoins, it’s important to understand that bitcoin is a form of cryptocurrency.
Cryptocurrency is essentially a term given to a system that uses the art of writing or solving codes to enable the secure transaction and transfer of digital tokens. The main draw of this system is that it operates as an electronic form of currency that bears no connection to a central government or banking laws.
Another term that is commonly used in this conversation is blockchain. A blockchain is simply explained as the electronic equivalent of a ledger. Like its paper counterpart, a blockchain is a list of records that contains data such as financial transactions and their timestamps.
Each blockchain is supposed to be resistant to modification, accomplishing a completely transparent yet secure transaction for all parties involved. The blockchain is shared over a network of computers participating in the transactions. There is no need for a third party to be involved in the payment process.
What exactly is Bitcoin?
Bitcoin was introduced in 2008 by software developer or developers operating under the name, Satoshi Nakamoto. Nakamoto wanted to create an electronic payment system that was independent of any central authority. In addition, this payment system had to provide almost instant transfers (electronically) with minimal transaction fees. The current system that bitcoin operates on runs without any administrators or the need for an intermediary. Essentially, you directly control the money yourself without using a third party like a bank or PayPal.
Bitcoin is currently used to make thousands of transactions, even between countries. The price is determined by supply and demand. Put simply, when demand increases so does the price. It’s estimated there are 270,000 transactions made each day.
The Monetary Authority of Singapore has announced a plan to use cryptocurrency as a means of settling cross border transactions instantaneously. While the two-phase project, aptly titled ‘Project Ubin’, is currently a work in progress, this shift in attitudes towards cryptocurrency shows its increasing influence.
Bitcoin has begun to show more prominence in the gaming sphere, with companies like Nexon, a desktop and mobile gaming giant, purchasing stakes in Korbit - Korea’s first bitcoin exchange platform. Unikrn, an e-sports betting platform, recently raised US$25 million in its initial coin offering (ICO), with huge names such as startup investor Mark Cuban on board.
Crypto-caution advised
It’s not all plain sailing for cryptocurrencies. Bitcoin's price is highly volatile. Largely speculative and unregulated price surges are often followed by crashes. In September 2017, China declared initial coin offerings illegal and called a halt to fundraising involving virtual coins in a move to curb risks within unregulated areas of the financial system. The Chinese government argued that there's an increased opportunity for fraud when investors put their money behind a new cryptocurrency. As part of the ban all completed ICOs are required to return the money raised.
A couple of weeks later Jamie Dimon, CEO of JPMorgan Chase, told a bank investor conference in New York that Bitcoin “is a fraud”. Reuters reports that he went on to say, “The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.” Dimon said that if any JPMorgan traders were trading the crypto-currency, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.”
Nevertheless, there is no doubting that there is a lot of interest and buzz around cryptocurrencies. Spencer Yang, Head of Asia at Unikrn, is naturally very positive, but even he acknowledges that there is still work to do. “Cryptocurrency is already starting to be used by sites in transactions. A niche group of users are using it for sending money and paying for services … Much of the activity in peer to peer transfer of cryptocurrency today is speculation. In my view, the ecosystem still has work to do, more applications need to be developed, scaling solutions need to be implemented and people need to be able to embrace it more.”
How to use Bitcoin
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Use the Bitcoins to make purchases. Head to a bitcoin merchant directory like Airbitz or OpenBazaar to see what’s available.
Is it secure?
Nothing online is 100% secure and you should be as cautious as you would with any financial transaction. Bitcoin is susceptible to hacking but there are protective steps you can take. Users of bitcoin are advised to keep small portions of bitcoins in the wallet at any point of time and to back up their wallets on a regular basis. You should also keep an offline wallet, like Ledger Wallet, as a form of savings. Hardware wallets are the most secure as they do not expose your bitcoins to the network.
Other methods or types of cryptocurrency?
While the most widely known, bitcoin isn’t the only player in the game. There are other types of cryptocurrency that are currently in circulation. These include:
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Litecoin (LTC), a form of cryptocurrency that is sometimes used as complimentary addition to bitcoin.
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Ethereum (ETH) is trying to tap into the kickstarting market, allowing contributors to invest in new products without releasing their money till the product is completed.
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Zcash (ZEC) boasts features of being the first cryptocurrency that can fully protect the privacy of your transactions.
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Dash allow one to make payments for bills, a feature currently only available in Australia.
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Ripple (XRP) looks to focus on the global corporate market, linking banks and payment providers on a more fluid platform.
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Monroe (XMR) was launched in 2014 and is an open-source type of cryptocurrency that aims to be fully untraceable.
Summary
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Cryptocurrency can be explained as an electronic tokenised currency
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Bitcoin is one of many methods of types of cryptocurrency currently available for purchase
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A blockchain is a ledger that contains data such as financial transactions and their timestamps and offers the prospect of secure transactions
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To use bitcoins, you need to purchase a wallet and bitcoins then find a merchant who accepts cryptocurrency payments
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Keep your bitcoins secure by keeping small amounts in your online wallet and larger amounts in an offline wallet
Disclaimer: Singtel myBusiness does not endorse or advocate the use of bitcoin or cryptocurrency. This article is meant to only be an educational article to help SMEs understand what they are. Use of cryptocurrencies such as Bitcoin carries risk and should be considered before any investment or adoption.