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Why Bitcoin Matters
Bitcoin becomes an uncovered topic, yet the gulf between what the press and many regular people believe Bitcoin is, and what a growing critical mass of technologists believe Bitcoin is, remains enormous. Bitcoin has so many programmers and entrepreneurs all lathered up, and Bitcoin also has a future potential.
The fundamental level of Bitcoin is a breakthrough in computer science – one that builds on 20 years of research into cryptographic currency, and 40 years of research in cryptography, by thousands of researchers around the world. The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate. What kinds of digital property might be transferred in this way? Think about digital signatures, digital contracts, digital keys, digital ownership of physical assets such as cars and houses, digital stocks and bonds and digital money. how crazy is it!
How does this work?
Bitcoin is an Internet-wide distributed ledger. You buy into the ledger by purchasing one of a fixed number of slots, either with cash or by selling a product and service for Bitcoin. You sell out of the ledger by trading your Bitcoin to someone else who wants to buy into the ledger. Anyone in the world can buy into or sell out of the ledger any time they want – with no approval needed, and with no or very low fees. The Bitcoin “coins” themselves are simply slots in the ledger, analogous in some ways to seats on a stock exchange, except much more broadly applicable to real-world transactions. The Bitcoin ledger is a new kind of payment system. Anyone in the world can pay anyone else in the world any amount of value of Bitcoin by simply transferring ownership of the corresponding slot in the ledger. Put value in, transfer it, the recipient gets value out, no authorization required, and in many cases, no fees.
What’s the future of Bitcoin?
Bitcoin is a classic network effect, a positive feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it, and the higher the incentive for the next user to start using the technology. Bitcoin shares this network effect property with the telephone system, the web, and popular Internet services like eBay and Facebook. Many thousands of programmers are using Bitcoin as a building new product and service ideas that were not possible before. Second, many low-income people work in hard jobs in foreign countries to make money to send back to their families in their home countries – over $400 billion in total annually, according to the World Bank. Every day, banks and payment companies extract mind-boggling fees, up to 10 percent and sometimes even higher, to send this money. On the other hand, Bitcoin charges no or very low fees, for these remittance payments will, therefore, raise the quality of life of migrant workers and their families significantly. In fact, it is hard to think of anyone thing that would have a faster and more positive effect on so many people in the world’s poorest countries. Third, Bitcoin generally can be a powerful force to bring a much larger number of people around the world into the modern economic system.
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