The internet of money – Bitcoin!

Current payment methods are inefficient, but technology is changing that.

Nearly every person has the same routine before leaving the house: cell phone, wallet, keys. But pretty soon, you’ll only need two of those essential items. That’s because current methods of payment are bound to change. In addition, credit-card technology is not only complicated, but it sucks up a huge percentage of retail profits.

After all, most internet companies maintain profit margins of around 5% and about half of that gets paid out to credit card companies or service providers. For example, companies pay monthly statement fees, monthly minimum fees, gateway fees and transaction fees of between 2 and 5% per transaction.

Seem like a lot of information?

Well, MasterCard’s policy on interchange fees is over 100 pages long! Furthermore, since most countries have low access to banking systems, people tend to rely on alternative forms of payment. In fact, in most low-income countries, simply setting up a bank account is a seriously difficult task and securing a credit card is just about impossible. That’s why Kenya developed an alternative that has since spread to 45 other countries. It’s called M-Pesa and it’s a payment system that uses mobile phones. It allows anyone with a SIM card to transfer money by sending a text.

However, such systems are just the beginning. Technology is going to push payment to even greater heights as encrypted currencies, like Bitcoin, gain more steam.

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Bitcoin? Can you please explain?

On January 9, 2009, a mysterious internet user hidden behind the pseudonym Satoshi Nakamoto brought forward an idea that would change the financial world forever: Bitcoin. Bitcoin is a digital currency radically different from any traditional cash system. First of all, anyone can get involved by simply downloading its open-source code.

Anyone can look at the code, examine what is happening under the hood, so to speak, and even help make improvements. This contrasts with classic software programs like Photoshop or Microsoft Office, where a closed group of developers build a program whose code only they can see and change.

Another way Bitcoin differs from a typical currency is the total absence of a centralized authority. Unlike a bank, where each user’s holdings and transfers are stored privately, Bitcoin uses a communal database called the blockchain that everyone can see. The blockchain is like a giant public ledger that stores the record of all existing bitcoins and every transaction ever made. But instead of being located in one place, a brilliantly designed mechanism distributes this exact same record to every computer in the Bitcoin network.

As a result, Bitcoin is not as private as the international banking system, where only you and your bank can access your finances. However, there’s also no limit to the amount of Bitcoin accounts, called wallets that a user can own. And unlike a bank, all you need to create a new wallet is an e-mail address, so anyone can open an account and Bitcoin has the potential to be used totally anonymously.

Bitcoin also updates traditional currencies by integrating powerful encryption techniques into its core. While a lot of cash withdrawals still rely on primitive PIN numbers, Bitcoin uses robust public-key cryptography that not even the most powerful supercomputers can crack.

Public-key cryptography has two components: a private and a public key. When a Bitcoin transaction takes place, the public key is recorded in the blockchain for everyone to see. But only the users who made the transaction have the private keys necessary to decrypt the transaction and access the funds. By using cryptography in this way, Bitcoin is able to bypass centralized security systems like banks.

But how do they work?

Bitcoin is an alternative money technology and send encrypted messages that make for easier, faster payments. That kind of access means anyone can set up shop and charge for services. For instance, Airbnb and Uber are great examples of how business is becoming more distributed and local. And encrypted digital money is so safe that it can even be used to purchase a home!


Bitcoin is a new kind of money that is created, held and transferred by its users.


The Bitcoin protocol has many advantages over typical currencies – far beyond storing and transferring money. In the same way that the internet liberated information and communication from postal services and major media corporations, some believe Bitcoin will free money from the strictures imposed by banks.

And they might be right.

One major advantage Bitcoin has over the banks is its capacity to transfer money instantaneously.

We live in a world where it’s normal to transfer gigabytes over the internet in minutes or call a friend on the other side of the world in HD, but a bank transfer still takes multiple days.

This anachronistic arrangement came into sharp focus during the financial crisis. The major bank JP Morgan Chase was on the point of collapse and needed funds urgently from a bank in Japan. However, the situation arose on a weekend and the next Monday was a bank holiday. So to save the bank, they were forced to write a $9 billion paper check and send it by mail!

With Bitcoin, it would have taken milliseconds.


But Bitcoin beats the banks in another way: its digital nature makes it perfectly suited to the new economy of the internet.


Bitcoin’s universality allows money to cross borders without foreign transaction fees. And as digital currency can easily be divided into very small amounts, online services can charge tiny fees, like 0.01 cents to read one page of a book or 0.02 cents to skip an ad.

But Bitcoin is not only transforming the world of finance; its unique structure has many other applications too.

Consider the core of Bitcoin, the blockchain protocol, as an example. Its powerful verification system allows people to build trust in a wide variety of circumstances. Since everyone can see the blockchain and no one can modify it, this concept can replace traditional legal systems of trust, like when someone needs a witness for the signing of a contract or will. In the past, an official like a notary or solicitor had to be present, but with the public blockchain, everyone can see that the contract really took place.


Bitcoin has the power to fundamentally disrupt the way we use money. But the most interesting uses of Bitcoin have yet to be discovered.


Anything can function as money as long as people agree it has value. Bitcoin has only existed for a few years, but the industry has boomed and peoples’ trust in Bitcoin as a form of currency has only increased. It has the potential to radically change our global economy by removing middlemen and providing anonymity. Despite their currently volatile nature and other downsides, cryptocurrencies are undoubtedly the future.

How do banks react to that?

Maybe by looking also to the downsides of Bitcoin? And there are believe me! Bitcoin still has many weaknesses and is difficult to regulate. Maybe something to write about in my next blog? Please share your thoughts and if you want to know more about it, just comment or share:)

Much love, Marietta

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