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Crash Course Bitcoin. Currency Of The Future

Freemont Group
04 December, 2013

You have seen it in the news. After years in the shadows, Bitcoin has emerged.

Like everything new: Bitcoin brings in excitement, speculation, rumor, and downright confusion. And rightly so. After all, it’s an entirely new global monetary system.

Both a currency and a payment network for that currency.

What is it? Where will it go?

Stay tuned for a crash course in Bitcoin.

What is Bitcoin?

Bitcoin is two things: it is a digital currency unit and it is a global payment network with which one sends and receives those currency units.

There are number of characteristics:

There is a maximum of 21 million Bitcoins worldwide, which are released over time at a declining rate. There is no inflation. There is a finite supply.

  • Each Bitcoin is unique and cannot be faked.
  • The price of a Bitcoin is determined by supply and demand. They are traded on currency exchange sites.
  • Bitcoin is unregulated. There is no central authority or company that controls Bitcoin. Transactions can be made untraceable and anonymous. No banks, central banks or payment providers (like Paypal and Western Union) need to be involved in instant transactions worldwide.
  • Bitcoins are fungible and can be divided into bits for small payments.
  • Bitcoins are more and more accepted by merchants and websites worldwide.

So how does it work…?

…You might be asking — Keep reading…

To use Bitcoin you download a “wallet”. A piece of software that operates as your bank account.

As soon as this piece of software is installed one can receive and wire funds anywhere in the world with a click of the mouse. Just as easy as sending an email.

It is a free and open-source system downloadable from Bitcoin.org. Transactions are sent and accounts are secured using what’s known as “public key cryptography.”

You have a public key (bank account) and a private key (password). Anyone can send funds to your account and you can send money to everybody that you know the account of. But funds in your wallet can only be accessed with your private key. As long as you keep that safe, your funds are safe.

Accounts look something like this:  3FWWgdwoijfwd64Vdeeojiw5334wfwWww
Put that on your website or blog, invoice or business card and everybody can pay you. Instantly, without costs and relatively anonymous.

Why is it valuable?

Because it is useable and scarce.

As mentioned, Bitcoin offers users a lot of benefits. Instant payments and low costs. It gives individuals the means to perform transactions and engage in business in ways they see fit, without restrictions, accountability and interference. Usability for Bitcoins is thus very high.

We also mentioned that Bitcoins are finite. There is not a central authority that can print Bitcoins “to stimulate the economy” and there is no way of changing that.  It is a mathematical certainty. Bitcoins are scarce.

Bitcoin is not very different from the currencies we use every day: pieces of paper that we assign a certain value to. Besides, most of the currency used today is digital as well. One’s and zero’s in the computer of a bank with no real backing.

How to obtain Bitcoins

There are two ways to obtain Bitcoins. The first one is to provide an (online) service. Find a service that someone is willing to pay for, perform it and have your clients wire funds to the account as discussed.

The second way to obtain Bitcoins is to buy them on the open market using a trustworthy exchange like: MtGox.com or (mainly for Europeans) BitStamp.net. As soon as you have Bitcoins in your wallet you can make instant payments to people all over the world.

Are there any downsides to Bitcoin?

Let us discuss a few objections to Bitcoin.

1. Isn’t Bitcoin used by criminals.

Probably. But so are USD Dollars.
And I am sure that criminals shop in Walmart. And take their kids to McDonald’s. Should we ban them all?

One of the early markets where Bitcoin was used was Silk Road, an online black market where everything from illegal drugs to assassins could be purchased. This fall, the US authorities terminated this website.

However that site is being set up again and Bitcoins is getting now known to general public.

2. Is Bitcoin really an alternative to our current system?

At the current stage no. There are simply too few people who actually use it. And it is unlikely that it will change soon. It will probably be existing parallel to our current monetary arrangements. But because it has such great benefits it will likely increase in popularity. We expect it (or a new alternative of it) to become as regular part of our live as twitter is now. It will alter the way we view mediums of exchange and business in general.

3. Is it really anonymous?

Not really. When you put your public account code on your website people can link that to you. Also, when Bitcoins get transferred, a piece of data will be added that that describes its history of being in your account.

The only way to pay anonymously is to use services that stack Bitcoins and hussle payments from it. Then the source of each individual Bitcoin is untraceable.

4. Does the government like Bitcoin?

We assume that the government is looking at Bitcoins and wants to do what governments always do. Regulate it and take a part of it to give to their sponsors / special interest groups. However, Bitcoin is such a decentralized system that it cannot be controlled. They could try to regulate the exchanges, and target businesses that accept Bitcoins. Fact is, the genie is already out of the bottle. Likely, it will follow the same path as the attempts to stop illegal downloading.

5. Can Bitcoins be stolen?

Yes. Although Bitcoins are saved on your computer or USB, they have to be stored somewhere. However, they are useless without your code. As long as you use a sufficiently complicated code, it will be very difficult to crack. When you make a few backup copies of your Bitcoin wallet on different locations you are also not at risk of losing all your funds when your hard drive crashes.

What do we think?

Good question. We think that there is future for digital currencies. It might be Bitcoin. It might be a future alternative that is not yet stained with propaganda. It might be a combination of the above.

The means of transferring funds at high speed and low costs should catch interest every international businessman.

We do think that at the moment most of the news regarding Bitcoin is speculative, but there might be huge movements as soon as the greater public understands what Bitcoin can mean for them.

That is why we think that people should be educated at this interesting opportunity.

Let us know what you think or if you have any questions.

Tags: Euro

About the Author

Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com


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