In the recent times, many business players are talking about investing in the business opportunities associated with the concept of Blockchain technology. A brief glimpse at its history will make you understand why many people are investing in such business opportunities. In the past decade, several digital currencies like BitUSD, BitUX, Ogon, and Maid Ledger have grown in popularity. As these currencies increased in value, business owners started apprehensive about the ability of their organizations to track and secure real-time transactions, especially with regards to remittance and international money transfers.
The use of bitcoin for tracking digital currency has come as a surprise to most industry players. However, recent developments in the field have forced the attention of industry players to look closer into the practical implications of this revolutionary new technology. While some industry players argue that bitcoin’s track record over several years is sufficient to prove the efficiency and reliability of the technology, others opine that there are still a few issues that need to be addressed before the technology becomes a mainstream solution for global payment processing. Some experts opine that the most pressing issues that need to be resolved include issues related to scalability and centralization. While both are related to the design of bitcoin, both are also present in centralized systems like PayPal and Microsoft Money.
One of the biggest challenges that face bitcoin revolves around its ability to manage and track the diverse ledger records. The core functionality of the system rests on its ability to maintain a decentralized system which is free from major systemic risks like transaction malleability, reverse order flow, and bandwidth constraints. The bitcoin network is built on the principle of proof-of-work, which means that a majority of users need to ensure the integrity of the ledger in order to validate all the activity on the system. In addition to this, the decentralization of the network requires the existence of a number of custodians who ensure that the ledger is secure and backed up at regular intervals. With regard to this aspect, it has been a source of concern for some industry stakeholders as well.
There is another challenge that has been highlighted by the cryptographics experts in the bitcoin industry. One challenge is related to the handling of confidential or proprietary information. Unlike traditional monetary instruments, bitcoins do not have a legal tender and are not backed by any government or institution. This renders it open to fraud and data theft. Consequently, if one or more private individuals carry out fraudulent activities with the digital currency, they will not be caught due to lack of any government record of such activities.
The absence of any government guarantee is another significant disadvantage that faces users of the bitcoin protocol. This poses a significant challenge to the security and robustness of the bitcoin network. Since the bitcoins system does not have a back office, there is no physical security that can be guaranteed. Consequently, the industry stakeholders should consider the risk of physical theft and privacy breach as they relate to the use of virtual currencies. Other disadvantages that have been highlighted are the lack of standardization of bitcoins, high transaction costs as well as the inability to offer a transparent electronic payment system.
A key challenge facing the bitcoin and other cryptocurrencies is the lack of a central agency or regulatory authority to mediate the exchange process between users and service providers. This leaves the buyers, sellers, traders and investors without a standardized pricing mechanism to trade with. This lack of a central pricing mechanism makes the market for these currencies highly inefficient from a transaction perspective as well as a price volatility perspective. Consequently, inconsistencies in the pricing of the currencies may result in price volatility which may affect the attractiveness of the target portfolio.
While these issues are important for the general public to consider when dealing with the bitcoins digital currency, they are even more critical for those who wish to take advantage of the low cost benefit of the bitcoin marketplace. In the absence of a standardized pricing mechanism, the only way to ensure that the public gets the best deal on the supply of bitcoins is to transact using a digital currency exchange like Bitstamp. By using this software platform, the user will be able to enter the market and buy and sell her very own personal computer application with which to execute her trades. This ensures that the individual is trading under a secure environment utilizing the most secure and efficient trading platform available. Furthermore, by using the Bitstamp software, the user will be able to make use of her own private key in order to access her own private virtual asset vault.
For the long term, it is expected that the bitcoin economy will expand to satisfy the demand for the low-cost benefit of the distributed ledger technology. In doing so, it is important for investors and traders to realize that the current uncertainty in the global financial markets will not effect the widespread acceptance of this new decentralized digital currency. In fact, there are more than two-thirds of all traders currently using the bitcoin network to execute their trades. As more people continue to embrace this relatively novel means of exchange, we can expect to see this particular kind of currency become very commonplace in many financial markets around the world.