In 2016, over $26.7 billion was lost to credit card fraud, with up to 46% of Americans affected in the past 5 years. Not only this, but more than 976 million data records were lost or stolen during data breaches last year, with the business sector accounting for 45% of this figure. With statistics like these, it is no wonder individuals and businesses are seeking an alternative method of online payment.
Enter Bitcoin: a digital cryptocurrency launched in 2009 by an anonymous programmer under the pseudonym Satoshi Nakamoto. Unlike the conventional system for buying things online, in which a bank or credit card company validates the transaction by acting as a central ledger, Bitcoin operates directly peer-to-peer. This system, enabled by something called a blockchain, eliminates the need for you to entrust confidential information to anyone other than yourself.
The benefits of Bitcoin are numerous. Not only is it more secure, the immediacy of the payment is free of any transaction or conversion fee, making it a lot easier and cheaper to pay across international borders. They are produced by ‘miners’, individuals responsible for maintaining the public ledger, although their production is capped at 21 million. With the rate of production set to halve every 4 years, mines are expected to empty around the year 2140. This cap protects Bitcoin against inflation, making it popular to invest in. Right now, the cryptocurrency market is worth over $100 billion.
As Bitcoin becomes more and more mainstream, that figure is expected to rise. You can already use bitcoin to buy beer, pizza, flights and cars, with many more companies looking to get involved. The appeal lies in its versatility; it is not just a new form of currency, but a whole new form of exchange. It is often referred to as “digital gold”.
However, as bright as Bitcoin’s future may be, that doesn’t mean you shouldn’t remain vigilant – no technology can be 100% safe from hackers. The main security risk lies in poor management of the digital wallet and private key: the means by which you store and access your coins, respectively. This risk can be reduced by keeping a separate ‘spending’ and ‘saving’ wallet, as you might with different bank accounts, and by keeping your private keys stored offline. Also, since transactions are untraceable (and irreversible), it has become the preferred method of payment for online criminals and hackers.
All things considered, is it worth investing in Bitcoin? Will its value continue to rise, or will the bubble burst? As usual industry experts are split, with Brock Pierce, co-founder of Blockchain Capital, claiming that the technology behind Bitcoin “is going to impact our world more than the internet has”. But some are less enthused. Peter Denious, head of global capital at Aberdeen Asset Management, told Bloomberg that Bitcoin’s success is totally dependent on “a gold rush mentality”, with prices driven by speculation alone.
Gold rush mentality or not, for now it’s a trend that continues to soar. In the course of writing this post alone, the Financial Times published an article on the development of a new cryptocurrency, “utility settlement coin”. This time though, it’s supported by the very banks Bitcoin sought to challenge, with Barclays and HSBC joining the project.
What’s next for cryptocurrencies like Bitcoin? Will other banks be forced adapt, or go obsolete entirely? The success of Bitcoin may well depend on speculation, but, in an industry run by creative thinkers, it’s a powerful driving force nonetheless.
Fraud statistics: https://www.creditdonkey.com/credit-card-fraud-statistics.html
Guardian Article on Bitcoin: https://www.theguardian.com/technology/2017/jul/01/cryptocurrencies-mainstream-finance-bitcoin-ethereum
Financial Times Article on USC: https://www.ft.com/content/20c10d58-8d9c-11e7-a352-e46f43c5825d