Bitcoin is a virtual currency (cryptocurrency) created in 2008, most likely by a person or group of people operating under the pseudonym Satoshi Nakamoto. This “currency” does not belong to any state — it is not issued by any central bank and no financial institution exercises control over it, which is why internet users refer to it as the currency of the free world. We asked Wojciech Szubert, businessman and creator of innovative solutions, to answer our questions about cryptocurrency.
What exactly is Bitcoin? Wojciech Szubert: The Wall Street Journal describes Bitcoin as “a radically new, decentralised management system — a way of exchanging wealth in society.”
What is/was the Bitcoin-based payment system supposed to involve? Wojciech Szubert: The Bitcoin-based payment system was designed to operate on cryptographic proof rather than trust (between individuals or institutions), by enabling any two willing parties to carry out transactions directly between themselves (peer-to-peer) without the need for any third-party involvement.
What is Bitcoin? Wojciech Szubert: Put simply, it is a file encoded on a smartphone or computer hard drive, serving as the equivalent of a banknote. Just as a banknote has numerous security features in the form of watermarks and security threads, Bitcoin is cryptographically secured against copying or counterfeiting.
How was the value of Bitcoin established? Wojciech Szubert: For the first ten years after its creation, Bitcoin had no value. Its value was established on 05.10.2009 based on the cost of mining — $1 = 1,309 BTC — on the assumption that the cost of 1kW was approximately $0.11 and that an average home computer running at full CPU load consumes around 100W (2.4kW per day).
Why is Bitcoin susceptible to inflation? Wojciech Szubert: Bitcoin is not susceptible to inflation, because the algorithm implemented within it means that it cannot be “issued” indefinitely.
What is the ultimate supply of Bitcoin? Wojciech Szubert: The maximum number of “coins” that will ever be generated is 21 million.
Has Bitcoin fulfilled its original objectives? Wojciech Szubert: Bitcoin has not entirely fulfilled its original objectives, largely due to the human factor and the fact that it became a pseudo-currency and a store of value — used as a value repository, an investment vehicle and a subject of speculation. It is worth adding that Bitcoin was/is programmable, meaning it could/can have a representation other than a purely “monetary” one.
What are the risks associated with using Bitcoin? Wojciech Szubert: Bitcoin is not fully secure as a “currency.” One may be robbed as a result of a cyberattack on a virtual currency exchange or the user’s own technological infrastructure; one may lose invested funds, as they are not guaranteed as a “currency” by any Deposit Guarantee Scheme; one may be defrauded, as some forms of Bitcoin investment may turn out to be pyramid schemes; one risks the invested funds, as the prices of virtual “currencies” are volatile and uncertain; and the exchange of virtual “currencies” between parties may be exploited for unlawful activities, such as money laundering, terrorism financing, funding the drug trade or prostitution, and so forth.
