What is Bitcoin? Its Definition, Application, Features & Challenge

Bit Coin

What Is Bitcoin?

Bitcoin (₿) is a digital cryptocurrency created back in 2008. It is the first decentralized currency that you can send through the internet. Bitcoin is considered to be safe as the transaction is done within the sender and receiver without the involvement of a bank or any middleman. It was created by a mysterious and pseudonymous Satoshi Nakamoto. However, there is no official record that who exactly invented this idea.

The main motto of Bitcoin is to eliminate the transaction fees of traditional online payments. It is operated by a decentralized authority and verified by network nodes through cryptocurrency which is recorded in the distributed ledger called a blockchain. There will no bank, physical money in Bitcoin it is just a number that everyone can have on their mobile phones or computer.

Features of Bitcoin

In recent days, as technology is accelerating at a rapid pace, the popularity of Bitcoin is increasing throughout the world. Let’s look at some of the core features of Bitcoin.

  • Digital Currency – Digital currency means completely digital. No physical cash is present in Bitcoin. You only play with the numbers on your phone or computer while making transactions.
  • No middleman – This is the core revolutionary idea behind Bitcoin. In traditional online transactions, there is are the presence of middlemen such as banks, governments, or individual firms. So, there is the fear of freezing, pending the money. No bank holidays, no bureaucracy. Bitcoin users can have full control over their money. Even there is no fee deducted while the transaction.
  • Fast – Bitcoin transactions are relatively faster as compared to bank transfers in traditional transactions.
  • Secure – As long as the private key is kept secure, the Bitcoin transaction is very safe.
  • Transparent – The transactions are anonymous with no names involved. Every transaction is a public record that anyone can see. Only the private key is the only link between the user and the Bitcoin.
  • Flexible Fees – Since there is no way to identify, track, or intercept bitcoin transactions, one of the major advantages of bitcoin usage is that taxes are not added to any purchases. A very little transaction fee is charged.

Challenges of  Bitcoin

As internet accessibility growing rapidly, there is also a risk in cryptocurrency when it comes to security. Some countries still have not legalized the use and transaction of Bitcoin. And where it is legal, it is facing some logistic hurdles. However, some companies have integrated Bitcoin as their payment option. But still isn’t feasible for many business owners.

So, let point out some of the biggest challenges that Bitcoin facing.

1) Volatility

The value of Bitcoin is highly volatile and unstable. As you see, the price of Bitcoin is skyrocketing every day. Bitcoin has been extremely popular among speculators who buy it hoping the price will continue to rise. Having said that, Bitcoin has not been a perfect choice for payment as it is continuously growing its value. If I want to pay today for what I have purchased yesterday, the Bitcoin price is already increased what it was yesterday. People simply do not want to take this sort of currency risk. So, the price needs to be stable.

2) Security

Bitcoin is a totally digital currency that there is no existence of physical money. Money can be lost due to computer hardware/software failure or failure of backup. On top of that, Bitcoin is totally dependent on the internet. As we know internet transaction is extremely safe at the same time there can be any types of attacks too. Losing the private key can result in losing Bitcoin. So, maintaining strong security is another challenge for Bitcoin.

3) Implementation

Adopting Bitcoin at a large scale of a business can be difficult. While some large companies such as Starbucks may be willing to partner with other companies, there is no compelling reason for small companies to do it unless they are interested to promote and use Bitcoin. So, using it as mainstream digital currency might take time.

4) Ease of Use

Although, Bitcoin is easy to buy, sell, and use, still it is pie in the sky for the general public for mainstream adoption. Currently, if a person wants to buy bitcoin, he/she needs to open an account at a bitcoin exchange such as Coinbase, link a checking account, and in many cases wait several days for the transaction to complete. So, making Bitcoin easy to use like other currencies might be another challenge for Bitcoin adoption.

5) Legality

Although many countries have legalized the use of Bitcoin, some countries still have not. So, in this case, global trade can not happen. Bitcoin is a new emerging currency i.e. there is still lots of work to do. So, it might take some time to legalize Bitcoin in every country of the world.

6. Scalability

Scalability is another big challenge for Bitcoin. The underlying Bitcoin technology, blockchain limits the amount of information that contains 1 MB of data for each block. This needs maximum network capacity to make the transaction smoother. As the Bitcoin transaction increases, it will have a more difficult time keeping up. This will obviously hamper the scalability.

What is Zero Coin

Zerocoin is a privacy protocol proposed by John Hopkins University Professor and cryptographer Matthew D. Green & his graduate students back in 2013. It was designed to overcome the major weakness in Bitcoin such as the lack of privacy guarantees we take for granted in using credit cards and cash.

Zerocoin was started as the Bitcoin protocol extension that allowed users to mix their own coins. At MIT, the original Zerocoin members and cryptographers collaborated and produced an efficient protocol called Zerocash. This allows direct private payments to other users alongside the Bitcoin currency.  Users can convert their non-anonymous bitcoins into anonymous coins, that is known as zerocoins. Users can send zerocoins to other users and split or merge zerocoins they own in any way that preserves the total value. Also, users can convert zerocoins back into bitcoins, though in principle this is not necessary: all transactions can be made in terms of zerocoins.