License to Bitcoin
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Described in the simplest of terms, Bitcoin is basically “completely digital money”.
In more complicated terms, it is a peer to peer payment network, with no central controlling authority and completely powered by its users. It is also the most recognized triple entry book keeping system in existence.
The first Bitcoin proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto.
The decentralized nature of Bitcoin is exactly the reason why it has flourished and is now considered a viable market. Cryptography negates the risk of double spending; the biggest problem concerning digital currency, with every transaction being recorded in a public ledger known as the block chain.
Is Bitcoin really used by people?
Apartments, law firms’ individuals and a number of online services use Bitcoins. Millions of dollars worth of Bitcoins are exchanged daily with numbers exceeding US$1.5 billion being recorded at the end of August 2013.
How easily are Bitcoin Payments accepted?
A smart phone or computer is all you need to make Bitcoin payments. Payments come from a wallet application and all the user has to do is key in the recipients address and amount to be transferred then press send.
Will Bitcoins make me rich?
There are various ways to make money with Bitcoins such as mining, speculation or running new businesses. The majority of Bitcoin users do not mine. Bitcoin mining as earlier stated is the biggest distributed computing project in the world.
Mining Bitcoins, just as other resources is tedious, time consuming slow work that offers no guarantee of return. In order to mine, you have to solve a block.
Simply put, it’s a numbers game, you need your computer to decipher a 64 byte string before anyone else does so you can get rewarded for your work. When a block is discovered, the discoverer may award themselves a certain number of Bitcoins, as agreed by everyone in the network; they will also be awarded a fee, which is paid by users sending transactions. For every block mined, the reward is 25 Bitcoins, which currently stand at a value of $4722.25. Proof of work must be shown for any mining activity to be valid.
If it is discovered that a block does not meet the required difficulty level, the block will be rejected and therefore be worthless.
You can however buy a mining contract.
Despite the fact that Bitcoin is an emerging technology and disobeys basic economic rules, Bitcoin has developed at an extremely fast rate but there is no guarantee that the growth will be sustained.
What is a Bitlicense?
There are currently no rules regarding how businesses should deal with money made from crypto currencies, but New York is seeking to change that.
The state proposes to effectively legitimize virtual currencies. The businesses would receive Bitlicenses which would be subject to regulation so as to prevent the currency from being used for any illegal purposes such as money laundering purposes or to buy drugs.
The premise of the law is to stop operations such as Silk Road from ever happening again. The laws are being touted as there to protect vulnerable citizens and prevent illegal products or services from being procured over the internet and are in no way going to impact the technology.
The Bitlicenses is supposed to make the transfer and deposit process more transparent. The exact opposite of what Bitcoin is. The law would dictate what companies must do with Bitcoins, including capital adequacy, i.e. taxes, and access to records
The government move of acknowledging the fact that Bitcoin is now so popular that they are fighting to legislate it makes it more real as opposed to a collector’s item, which some skeptics argue that Bitcoin is. Bitcoin investors however predict a positive outcome for the currency.
Whatever the final verdict is in New York, the implication of it will cause ripples in the technology and finance sectors.
Depending on the outcome of the verdict, other states may decide to go the same way as New York and have to react before they become targets.
How does the license affect Bitcoin users?
One part of the Bitlicenses requires issuers to register with the New York Financial Services authority within 45 days of the currency creation.
In effect if you own, transfer or receive a Bitcoin, you need to declare it. Effectively, this is the equivalent of creating a middle man between creation and distribution, completely going against the main reason why Bitcoin is attractive; it is peer to peer and mostly anonymous. Issuing specific licenses to businessmen who transact in Bitcoins goes against Bitcoins founding principle.
While” Know your customer regulations” make sense, in the case of Bitcoin, it would be criminal to own Bitcoins and trade them if you weren’t a bank, and you can’t be a bank of Bitcoins, as Bitcoins don’t really exist.
Bitcoin is slowly but effectively taking over the role of traditional fund transfer service such as Western Union or Money Gram. It remains to be seen whether the state of New York will be the first to acknowledge this.