i3 | June 05, 2017

The Rise of Digital Currency

Murray Slovick

Every day the world financial system is moving closer to a cashless future, where money in coins or notes is replaced with digital currency such as Bitcoin.

When you spend money or make a withdrawal from an ATM using the traditional monetary system, it is recorded as a transaction in your bank account. Unlike fiat currencies that central banks recognize as legal tender, Bitcoins are not secured by a financial group, but rather by public/private key cryptography. (A public key is a long, random string of numbers). Users, known as “miners” are the decentralized authority enforcing the credibility of the Bitcoin network.

There are no physical Bitcoins. With Bitcoins your transaction is recorded in a “block” once it’s been verified. Bitcoins sent across the network are recorded as belonging to a given address, which is generated once you install a Bitcoin wallet on your mobile phone or computer. This wallet can create more addresses when needed and you can disclose your addresses to others so that they can pay you or vice versa.


The software platform that powers Bitcoin, called Blockchain, is a list of records (called blocks) that represents a distributed public ledger of all Bitcoin transactions that have been executed. The Blockchain grows as “completed” blocks, meaning updates, are added to it in chronological order. Each block contains a timestamp and entries are permanent and searchable.

Everyone using the system can see what’s going on, yet Blockchain technology makes it difficult to hack into, doctor or destroy accounts. Think of it as a wall under construction. You place a block at the bottom and each time a block gets completed, a new block is generated so other blocks are placed on top of the one representing your transaction. As a result, it is difficult to tamper with your finances because of the other blocks on top.

As a distributed ledger, Blockchain reduces the costs involved in verifying transactions, and by removing the need for trusted third parties such as banks to complete transactions, the technology also lowers the cost of financial networking. Bankers like the idea of fast, efficient, digital money that does not carry the cost of handling cash, and can be tracked. Banks and governments spend roughly $200 billion each year to securely store cash. As a result, many countries are examining how to mint their own digital currencies and put money on the Blockchain.

These public ledgers also can record digitized renderings of virtually any documents of importance such as driver’s licenses, passports, birth certificates, Social Security cards, voter registration cards and records of the buying and selling of goods. A key advantage is you don’t need to carry paper documents that can be stolen, counterfeited or lost — helping to reduce identity theft. By storing data across its network, the Blockchain eliminates the risks that come with centrally held data. Dish Network accepted its first Bitcoin payment in 2014. Online retailers like Newegg, Tigerdirect and Overstock.com accept Bitcoin as well as the Apple App Store, CVS, Dell, Expedia, Target, Home Depot, Kmart, PayPal and Sears.

Blockchain promises to execute monetary policy and bring greater efficiency to global supply chains. A January 2017 World Economic Forum report estimated $20 billion worth of Bitcoin exists now. By 2027 about 10 percent of the entire global GDP will be stored on Blockchains or Blockchain-related technology. That said, exactly when a move to official digital currencies might occur is hard to predict. It could be in 10 years or decades before central banks widely use digital currencies.

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