Starting a new currency is easy, anyone can do it. The trick is getting people to accept it because it is their use that gives the “money” value.
When we talk about new currencies, the latest one is Cryptocurrency. This is a breakthrough in the financial sector, decentralised finance would do to banks what emails did to the postal industry.
When we talk about Cryptocurrency, one of the foremost names is Bitcoin. This article will give an easy exposé to what regulates Bitcoin, its competing currencies, cost of production, and regulations. To begin, let’s define a few terms.
What is Cryptocurrency?
This is a currency that uses digital files as money and it has digital signatures that are used to keep transactions safe. It uses a distributed network of nodes that share a public database, which contains cryptographed data and information about the transaction of that data known as a blockchain. This blockchain solves the problem of trustability. It is a decentralized system of finance, that is it is not controlled by an individual or a government.
A node is a system connected to a blockchain, it is where the blockchain is kept. To be updated, nodes constantly exchange data.
What is Bitcoin?
Bitcoin is a peer-to-peer electronic cash system. It is online money that can be used to buy goods and services. At the moment, not many countries accept Bitcoin, some have banned it completely.
People can send Bitcoins or part of it to other persons’ digital wallets or their digital wallets. The blockchain makes it plausible for Bitcoin users to track the history of Bitcoin transactions and prevent people from spending coins, undoing or making copies of transactions that are not theirs.
A Bitcoin block consists of details about the sender, receiver, and amount of Bitcoin to be transferred.
How do people obtain Bitcoins?
You can obtain bitcoins in three ways, they are:
- Buy Bitcoin using existing physical currencies
- Sell properties and get paid in Bitcoins
- Creating bitcoin using a computer
Since Bitcoin is a new currency, and it’s not readily accepted, you might wonder what is its demand and supply like?
Supply and Demand of Cryptocurrency
The supply of bitcoin can be controlled in two ways, they are:
- Method 1:The creation of a new bitcoin is done at a fixed rate. When crypto miners process blocks of transactions new bitcoins are introduced into the crypto market and the rate of introducing new bitcoin is designed to slow down with time.
- Method 2: The amount of cryptocurrency allowed to exist in a system. The number of bitcoin allowed in a system is limited to a 21million, as soon as this is reached production of new bitcoin ceases.
As soon as 21 million bitcoins are on the system, the prices of cryptocurrency depend on its ready use in transactions, legal systems, and the popularity of other existing cryptocurrencies.
Currencies competing with Bitcoin
Although Bitcoin is the most popular cryptocurrency, other altcoins are its competition. They are:
- Ethereum (ETH)
- Binance Coin (BNB)
- Tether (USDT)
- Cardano (ADA)
- Polkadot (DOTT)
These are the closest BTC competitors as of March 2021, but it is important to note that new coins are constantly lurking on the Defi “horizons”.
Cost of Bitcoin production
True, Bitcoin is a virtual currency, it still has a cost of production. The process of producing BTC is called mining, and a key factor in production is electricity consumption.
Crypto mining is dependent on a computational problem. This problem miners (active nodes) try to solve. The first CPU to solve it validates the block. To achieve this a mechanism called Proof of Work (PoW) is used. This is a system used by decentralized networks to reach an agreement on account balance or modification of a block.
Governmental regulations and legal system for Bitcoin
As stated earlier, cryptocurrency runs under decentralized finance, hence it’s a peer-to-peer network transaction, no centralized authority, this is the exact reason governments are scared and skeptical about cryptocurrency.
To explain easily, the government determines what is regarded or issued as a currency, these conventional currencies are rendered as fiat. The government controls fiat currencies, they use banks and monetary policies to influence economic power, so for a currency that doesn’t follow this “norm” and they can’t control, little wonder the fear.
Public opinions about Bitcoin
Due to its popularity and use, Bitcoin has attracted the opinion and influence of notable persons. Such as:
- Bill Gates: “Someone who’s interested in finance can help drive innovations such as digital currency that reduce transaction costs so that poor people can borrow at five per cent a year instead of 15 per cent.”
Bill’s words are not endorsements for bitcoin but support for thriving digital currency.
- Elon Musk: Tesla, which happens to be his company, is the latest addition to the crypto world as it purchased $1.5 billion in Bitcoin, the biggest investment in the history of cryptocurrency. He also plans to accept cryptocurrency as payment for cars.
- El Salvador: Unlike most countries that do not accept cryptocurrency, Salvador became the first country to officially adopt cryptocurrency as legal currency but it got off to a bumpy start as citizens kicked against it. In an interview with the Governor, he said: “Like all innovations, El Salvador’s Bitcoin process has a learning curve. Not everything will be achieved in a day or a month.” These words show he’s fully into innovation.
- BEX First Cryptocurrency Bank: You have 2 ways. To be in denial and pretend that cryptocurrency does not exist, or to make cryptocurrency a part of your life and your business today and get ahead of those who doubt and wait.
It has been quite enlightening learning about BTC, its production, policies, and support.
As with every new invention, it takes time to be generally accepted. With the passage of time and the increase in adoption and use, cryptocurrencies would be embraced by the general society.
