In Brief: Bitcoin & Blockchain
Part of a group of emerging technology briefs developed for UN colleagues.
What is Bitcoin?
Bitcoinis a decentralized digital currency which uses open source software to allow peer-to-peer currency exchange, while recording all transactions in a publicly distributed ledger called the block chain. Bitcoin does not require the use of a bank or clearinghouse, is fraud resistant, allows for ease of use anywhere in the world, cannot be frozen, can be exchanged for other currencies and requires no transaction fees. New bitcoins are generated through a process known as mining. Mining requires computers to solve increasingly complex algorithms which, in turn, process new transactions to the block chain in exchange for new bitcoins.
Application: Solving Real World Problems with Bitcoin
- Workers employed in out of their home countries send over $400 billion home to their families annually. Banks and payment companies may charge over 10% in transaction fees. Because Bitcoin does not require transaction fees, struggling families could avoid this loss of income.
- Only 20 countries have what is considered a modern banking and payment system. In countries with access to modern banking, the “unbanked” often pay exorbitant fees for basic transactions. Because Bitcoin transactions require only a cell phone and an internet connection, Bitcoin may be used to bring more people around the world into the modern economic system.
- Transaction fees allow for micropayments - payments smaller than $1 - which are economically unfeasible under other transaction systems. Because Bitcoin transactions can be fee-free, micropayments would allow for exchanges smaller than 1/1000 of a cent, one implication of which might be to sustain newspapers struggling in the internet age.
- Bitcoin protects charities and NGO’s from fraud and the mishandling of funds by allowing donors to trace transactions via the public ledger, ensuring that funds are being distributed as they were intended.