The phenomenon of Bitcoin, to be fully understood, deserves consideration from a social, economic, and political point of view.
The same “network effect” is typical of the telephone system, the web, and some popular online services such as eBay and Facebook. In reality, the network effect associated with Bitcoin is quadruple. Four catchment areas help to increase their value: consumers, who pay with bitcoins, merchants, who accept bitcoins, miners, who manage the computers behind all transactions and the trusted network, developers, and entrepreneurs, who create new products and services based on this ecosystem.
In Silicon Valley and the rest of the world, thousands of programmers are making bitcoins the basis for new products and services.
POLITICAL OBSERVATION OF THE BITCOIN PHENOMENON
A fundamental property of Bitcoin is, as mentioned above, their alleged anonymity. For this reason and not only, but the developments of Bitcoin could also have significant political implications. Today, in the current financial system, most financial transactions can be monitored. Anti-money laundering laws allow you to have control over your operations. Within the EU, it is illegal to travel for more than € 10,000.
With bitcoins, such a check would be more difficult than ever. Given the anonymity of bitcoins and the inability to trace money transfers as easily as normal operations require, the entire political system could be compromised. What would happen if the government were unable to control money? Subsequent implications are present about the right to privacy. The anonymity or pseudo-anonymity that distinguishes bitcoin payments offers a level of privacy that credit cards and bank transfers do not provide. The consequences of this, from a legislative point of view, must be adequately clarified.
ECONOMIC OBSERVATION OF THE BITCOIN PHENOMENON
From an economic point of view, Bitcoin can be seen as a tool to minimize transaction costs. This reduction should affect all these costs indifferently: from the current fees for the transaction to the costs related to the creation and reception of the transaction, to the costs related to accessing a bank account or a payment system.
The price of Bitcoin – that is, its exchange rate with other currencies – is instead determined by the interactions of supply and demand. When the insist for bitcoins raise, the cost goes upwards, and when the claim goes down, the value goes downwards. There is only a restricted figure of bitcoins inflow. Since Bitcoin still has a relatively small market to its potential, large amounts of money are not needed to move the market price up or down. Therefore this price is still very unstable.
TECHNICAL GAPS IN BITCOINS
The Bitcoin protocol has several technical shortcomings. In reality, rather than weaknesses, these are user security problems. Currently, the most serious threat to the Bitcoin network has been that represented by a bug in the protocol, which in February 2014 led to the failure of MtGox, one of the main cryptocurrency exchange platforms.
In general, several possible attacks can make the network fallacious, involving a single node or the entire system: if someone created their Bitcoin clients and acquired more than 50% of the total computing power, they could exclude and change the order of operations.
For the bitcoin mining process to work properly, the majority of miners must behave honestly. The paper shows that if a group of miners starts behaving “selfishly,” the entire mining system and its independence would collapse. Gavin Andresen, one of the main developers of the Bitcoin protocol, did not deny this thesis but reiterated the fact that the cause of a possible network fraud does not depend on how the system operates.
Security, mining and perplexities
As already mentioned, the mining system is the basis for the functioning of the Bitcoin protocol. It allows you to sort transactions and record them within the blockchain.
In this way, the peer-to-peer network manages to guarantee the authenticity of the transactions themselves, preventing the Bitcoins spent in one operation from being used in another (the so-called double spending phenomenon), or even stolen. To know more about these aspects, visit this site.
Conclusion: To better understand how this is possible, we must start from the proof of work system. This mechanism allows us to demonstrate that a certain calculation effort has been used in solving a problem. In the case of Bitcoins, as mentioned, consists of attaching a block of transactions to the chain.