Understanding the cryptocurrency revolution

Cryptocurrency is a digital currency where encryption techniques are used to regulate the generation of units and verify the transfer of funds, which operates independently of a central bank. This technology is revolutionary as it changes the way we see traditional banking and how it will be done in the future. If it has the capability to perform these functions, why would you need a traditional bank?

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It is estimated that only 2% of the world’s population knows about bitcoin, which is the world’s first cryptocurrency. Let’s put this into perspective, there are about 7,4bn people in the world, and only 12-14m people know and are using bitcoin currently.

A digital currency is born

Bitcoin was created in 2009, there is some mystery about who came up with the idea, but there is more and more evidence that it is the creation of a Japanese chap called Santoshi Nakamoto.

As bitcoins are created and held electronically, there is no need to spend on printing paper money, they are produced by people running computers all around the world, using Nakamoto’s software.

It is a decentralised system, meaning that it is not owned by any governments or authorities. Transactions are made with no middle men – meaning, no banks. Bitcoin was created with an intention of creating more wealth for people, it is different from traditional currency, as it is viewed as a commodity because it appreciates over time.

As fewer are produced, the more valuable they become

Nakamoto created a cap on the amount of bitcoins that is going to be released into the world, 21m bitcoins will be created and it is estimated that by 2140, the last will be dispersed. It is also scheduled to be released in tranches every four years, which is known as bitcoin halving. So every time they are released, fewer become available, and as the demand for bitcoins increases, the higher the price becomes.

Today, the bitcoin is worth around $530, and the second halving process is scheduled in July 2016, which will then see only 12,5 bitcoins created, every 10 minutes into the system. Currently there are 25 bitcoins, being released every 10 minutes. With the halving, experts predict that the price of one bitcoin after its halving can go anywhere from $700 to $3,500 (R10,000-R50,000) in 2016, and up to $ 10,000 (R145,000) in the next few years.

Why would we need a middle man?

The fact is that for centuries we relied on the banking sector to take care of our financial needs. Now we moving into a “money-revolution” where traditional currencies will become less relevant. Why would we need a middle man in the form of bank, if cryptocurrency has the power to eradicate current banking complexities and allow us more control over our banking activities?

Many of us also assume that because it is a digital currency, we cannot physically use this money. That is far from the truth. Bitcoin, works as a normal currency. Once you get your bitcoin debit card, which is a regular Visa or Mastercard, you can swipe at any point of sale system, which can be at your local Spar, Woolworths or even at the petrol station. You are able to withdraw local currency using your card at any local FNB, Absa, Nedbank or Standard Bank ATM.

First-world countries have a wider network of bitcoin ATMs already, while in South Africa the first bitcoin ATM was installed in Kyalami, Johannesburg in 2014.

The advantages of bitcoin

• Money can be sent globally in a matter of minutes.

• Fees are minimal, set at 0,01% at any amount you transfer whether it is R100 or R1m.

• It’s fast, efficient and safe.

• No tax, because it is a decentralised currency not owned by government authorities.

• It’s recorded on the block-chain which is a transparent system which we all can see.

• No third-party seizure. governments cannot freeze bitcoin account.