The Newest, Most Intriguing Currency
تكنولوجيا JAN 31, 2018

Most of you have probably heard by now about a new currency called Bitcoin and all you know about it are two things:

  1. 1- You know absolutely nothing about it.
  2. 2- People are making a lot of money because of it.

I’m going to help you a little bit in terms of the first point, as much as my knowledge serves me, and will tell you a couple of things concerning the second point. However, keep in mind that this article is nothing but the very basic explanation of one of the most complex systems that have ever been programmed.
To start things off, Bitcoin isn’t the whole thing. Bitcoin is just a currency in the world of cryptocurrency, much like a dollar is to the worldwide known currencies. In other words, with the birth of Bitcoin, back in January 2009, as the first ever cryptocurrency, came the birth of an entire new set of digital currencies such as Litecoin, Etherium, etc.. under the umbrella that is cryptocurrency, otherwise known as crypto.

But why is it gaining leverage?

Well the answer is quite simple. It gets rid of the banking system. We all know that whenever you want to transfer money overseas, or even get yourself an Uber ride, you’re most probably going to use your credit card. Seamlessly, what’s happening is you’re paying $5 to the cab driver. What’s actually happening is:

1- You press the “pay” button,
2- Your bank deducts that amount of money from your bank account,
3- Your bank sends that amount of money to Uber’s bank, (with a small fee)
4- Uber’s bank puts that money into Uber’s account, (with a small fee)
5- Uber sends a portion of that money to the cab driver,

  • a. Uber’s bank, yet again, has to intervene to deduct that amount of money from Uber’s bank account,
  • b. Uber’s bank sends that money to the cab driver’s bank (with a small fee)
  • c. The cab driver’s bank then stores the money in the cab’s bank account.

So that’s basically 5 steps with 3 sub-steps to pay a man driving you around, with a few fees here and there for the bank. In the world of cryptocurrency, here’s how it works:
Let’s take the example of Bitcoin. It was first developed as an attempt to eliminate the role of banks, or any third parties for that matter, and was designed in a way that resembles, as much as possible, day-to-day cash transfers between you and the service you whistle for in the middle of Beirut. The same way you would end up taking out your wallet, deducting LBP 2,000 from Amchit to Jbeil, Bitcoin has its own wallet. This wallet would belong to you and only you, with a very complex password that makes it as secure as possible. This wallet can be either physical (e.g. a small device that stores the amount of bitcoins that you have), or digital (e.g. an account you create on certain websites whose sole purpose is to provide people with digital wallets).
Ideally, what would happen is you would yet again take your physical wallet out, instruct it to send 0.5 bitcoins to the wallet of your cab driver. You see how simple that was? No banks, no one to eavesdrop on your transaction, nothing at all.

But if it’s stored online and created via codes, couldn’t anyone simply code their own bitcoins?

That matter is more complicated than it seems. Anyone could in fact code their own bitcoins but they wouldn’t be validated. Let me elaborate a bit more:
Take this graph for example. You see these small colored circles? These are called “nodes”. Each set of these nodes is connected to a pseudo-central node and each pseudo-central node is connected to yet another society of nodes. In other words, your transactions are connected to everyone else’s, and vice versa.
In fact, what’s happening is the following: I’m giving Patrick 3 bitcoins, and I have Johnny sitting there to confirm that this transaction did indeed happen. So then Johnny tells Adam, who in turn tells Jennifer, who also tells Mariah Carey, so on and so forth. In other words, if a transaction doesn’t fit in and is not in sync with what everybody knows, then it’s a fraud and it will not be passed. This is called a public ledger, much like your “daftar l bank” which gives you a summary of all of your transactions, except this one is available to everyone.

Well I’m confused now. I kind of know a bit more about cryptocurrency but, is it safe to trade with them?

This question can be answered by you and you only. What I can do is list you a set of Pros and Cons for cryptocurrency and you’ll have to make your own judgment.

1- Crypto provides protection from payment fraud. In the world of credit cards, a ‘buyer’ could send the money and revoke that transaction, thus taking the product they bought and not sending the money. This doesn’t work in the world of crypto.
2- It also provides direct transfers for immediate settlement. When buying a house for example, you’ll have to go by the bank which will go through the seller’s bank and then the seller himself causing a few days of delays, if not months, and a few dollars of fees, if not hundreds. With Bitcoin, you’re dealing directly with the seller, and are sending the money immediately with no one else interfering.
3- Lower fees, the only fees you would actually be paying is in case your wallet is present in a cloud via a server provider. If your wallet is physical, you’d pay absolutely no fees. Much like paying in cash.

As for the cons:
1- Money Laundering: since Bitcoin transactions preserve your identity and do not require the presence of a bank for instance, anyone can buy Bitcoins with drug money and resell them for actual money. It’s a simple money laundering technique.
2- High Risk of Loss: There are numerous reasons why Bitcoin might lose its value, which include lack of applications, in the sense that you currently cannot pay for a cab ride with Bitcoin. 
Increased regulation, meaning that certain governments might deem Bitcoin as a money-laundering scheme, thus making trading it illegal, but that’s not something foreseeable.
3- Volatility: You never know how such a new currency might behave. In just one year, it has had more ups and downs than a 50-year-old going through menopause. Until it becomes stable, you might strike a goldmine or go bankrupt while dealing with Bitcoin.

As a final verdict, I genuinely have no verdict. I, myself, have lately been interested in cryptocurrency and wouldn’t mind risking a thousand dollars investing in it. I’m not a financial expert but the way I see it, with the revealing of new cryptocurrencies, Bitcoin and its siblings are up for a very bright future, and it’s never too late to ride that wave.

تكنولوجيا JAN 31, 2018
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