Yesterday, Coinsecure, the largest Bitcoin exchange in India launched a mobile trading application for Android. This application provides a way in which Bitcoin can be exchanged in real time, by the 190 million smartphone users in India. It brings this somewhat elusive digital cryptocurrency into the hands of the mainstream masses.
First, a definition
So what exactly is Bitcoin? Bitcoin is a decentralised digital currency. While there are other currencies similar to it, is the largest of its kind in terms of total market value. As an alternative to the incumbent fiat monetary system (paper money made legal tender by a government decree), a group of programmers designed a digital asset and payment system which operates without a central administrator. The group, under the name Satoshi Namakoto, made this publicly accessible in 2009. Instead of centralised control, transactions and exchanges are verified by network nodes and are recorded in a public ledger, called the blockchain. Bitcoin is the unit of account, and it is not printed like the dollar or pound. Rather, it is produced by parties who run computer programs to solve mathematical problems which help the system to continue to exist. This type of money is known as cryptocurrency. It can be used to make payment electronically, instantly and cheaply.
While Estimates suggest that by 2019 there will be 4.7 million active users of Bitcoin, a number of negative associations have affected Bitcoin’s reputation through time. The use of this currency on the ‘dark web’ on online platforms such as Silk Road (taken down by the FBI in 2013) has not provided positive press for Bitcoin. Silk Road is best known as an online black market for selling illegal drugs. Although silk road has now been taken down, it is understood that drugs still make up a large proportion of transactions made using Bitcoin today. In 2014, the CEO of BitInstant exchange, a partner institution of Bitcoin was charged with money-laundering connected with Silk Road. Before this site came down, Bitcoin was the only currency accepted by Silk Road. Following this, $470 million worth of Bitcoin was stolen from Mt. Gox, a Japan-based Bitcoin exchange in the same year. So why does this all reflect negatively on Bitcoin? This is not a problem with Bitcoin itself, but of the way in which it has been used. So perhaps it can be used differently?
New uses for Bitcoin?
The complex technology which underlies this currency system has been rigorously studied by central banks worldwide. Recently, the People’s Bank of China (PBC) discussed how it can use Bitcoin’s record keeping technology to increase accountability in markets, explaining how it might attach its currency to a distributed ledger, whereby it can trace each renminbi in real time as it moves through the financial system, making the system more secure.
Similarly, the Russian National Bank said last week that it had worked with a group of Russia’s largest banks to develop its own distributed ledger, creating a prototype for a messaging system dubbed the Masterchain. One member of that institution said there are “several areas in which the technology could be implemented” but the bank was “concentrating…on the simplest cases.” Moreover, the Bank of England is considering a combination of a distributed ledger with the oversight of a trusted third party.
The People’s Bank of China, looking to use Bitcoin’s technology for record-keeping purposes.
The blockchain was created to allow cryptocurrency transactions to be recorded communally, making central authorities redundant. Central banks have seemingly thought of ways to turning this new technology to their advantage.
In a similar vein, the Department of Defense in the US is researching how it might protect its military systems, including its nuclear weapons, using blockchain technology. This creates a permanent record of all the times that an asset is viewed or altered when it is handled by multiple parties. Using such a model will enable military system analysts to view if a network has been ‘hacked’ into or tampered with, and will allow them to reject unwanted or malicious changes made in the form of new ‘blocks’. In this way the blockchain could provide an extra layer of security for military networks.
Meanwhile musicians such as Imogen Heap are looking to the blockchain to revolutionise the artistic process, and to enable individuals to gain instant payment for their work. This is part of a movement to instill values of “Fairtrade’ into the music industry, an arena where artists typically are not paid for their work for long period of time. A smart contract is a self-executing contract, stored on the blockchain, which nobody controls. This would enable the music industry to move from old models of payment to something new and it has been envisioned that the blockchain will give artists more rights over their music.
The future for Bitcoin
While at the moment the currency is completely unregulated, it might be argued that some level of regulation need to be put in place before Bitcoin can truly be used universally. Unlike paper or fiat money, the Bitcoin has no intrinsic value and the value of a Bitcoin might be seen as volatile. With time, solutions to these difficulties may emerge, but for now, the potential for Bitcoin to leave us with more secure markets (more secure military networks and financial markets) through the appropriation of its technology is a powerful and valuable notion.