Bitcoin was created as a peer-to-peer system for online transactions. The crypto-currency relies on a peer to peer network with no centralised authority and first emerged in a raw form during late 2009. Since then, Bitcoin has grown rapidly, with over 13million bitcoins now in operation today. The core innovation that makes Bitcoin exciting is that it uses consensus in a massive peer-to-peer network to verify transactions. Payments are non-reversible, accounts cannot be frozen, and transaction fees are much lower than alternative methods.
Given that most entrepreneurs like to operate with some economic certainty and stability there are significant weaknesses with the Bitcoin system and the way it currently operates. The activity of Bitcoin is validated through transactions known as a Blockchain, which is effectively the mode of recording the currency movement, your ledger account in other words. So while it may be considered to be a virtual bearer currency, it can be traced.
In public conversation Bitcoin is associated with speculation, risk and alleged use in illegal activity.
This all leads to the fact that until; • There is a central control and depository • Compliance and regulation • Security • A method of exchange rate control • Ownership from a viable source (the world bank?)
..Then the Bitcoin could possibly be considered to be a phase rather than the future. The fact that the Bitcoin has survived, and that leading banks are taking the event of Bitcoin seriously (Goldman Sachs and Merill Lynch are raising specific funds for investment in Bitcoin) must mean that there is a genuine/sustainable market for this currency.
In time, leading questions will be answered, when there is a substantial fraud or mania or panic surrounding the use of Bitcoin. There will be no central source to give it the validity nor security that those who suffer will seek. There will be no bank of last resort, no-one will stand firm and support and there will inevitably be losers. In that event, Bitcoin may not be able to last and survive. It is here and with us, it is real and yet it is the first internet and virtual currency. Proceed with caution.
Cash is king to any business, bitcoins may not be the form of cash we, as entrepreneurs, desire, at this precise time.
Next week I shall be discussing ‘Signs You Should Sell Your Business’. In the meantime, if you have any questions or wish to comment on this post then please do so below.