What is Bitcoin?
27 August, 2014
What is Bitcoin?
As Charles Darwin said, “It is not the strongest species that survives, nor the most intelligent but those most responsive to change.” Being surrounded by empires, Georgia knows well how keep pace with change. But change now is often technological rather than imperial. In the 1990's much of the developed world was getting used to increased opportunity from digital technology and the Internet. But Georgia was preoccupied with its own problems and with getting used to being a truly independent country.
Now most people in Georgia have some idea how computers work, and use the internet at least occasionally. Many use it constantly. To those who don't use it, without knowing it, their lives are surrounded by it. The internet is above all an open democratic area in which giant volumes of information can move almost without friction.

What the Internet is for information, Bitcoin is for payment. Currently payment must be made in currencies created and controlled by states and made either in cash or electronically via banks. There are several potential problems with this set up. First of all, states make mistakes, there is inflation, they become weak and their currencies become weak. And why should only states be able to issue currency? Cash is insecure, it can be stolen, for example by a corrupt border official, it can be lost or destroyed. Banks charge fees, often very high fees for transferring, holding, doing almost everything with the money they hold for you.

Bitcoin was invented in 2008 by a person whose identity is not known. She or he simply proposed the idea that there should be a currency that only exists on the internet. It operates with a ledger called the blockchain that lists all the Bitcoin in the world. Each owner has a public key and a private key. To spend the Bitcoin, both must be used. Bitcoin can be exchanged for a fiat currency like dollars, lari, or euro, all that is needed is a buyer and seller. The currency has value because people believe it does. One Bitcoin was only a few dollars until early 2013, and has fluctuated wildly since then but is today worth US$528 for each one.

New Bitcoins are created by an electricity intensive on-line computing process called "mining". Recently one of the world's largest Bitcoin mining operation signed a deal with the Georgian Co-Investment Fund to build a twenty megawatt facility in eastern Georgia. This has already put Georgia on the map among the growing Bitcoin community. Bitcoin the currency is important, but the concept it uses of an open exchange and the technology is just as powerful. And there are many other smaller similar virtual currencies set up in a similar way, a couple of them already having some success but nothing like Bitcoin which was the first.

For most people Bitcoin will not matter very much any time soon, the same way the internet didn't matter very much for Georgia in the 1990's. But the internet matters now. And there is an advantage to those who understand Bitcoin now and think about how it could be used in their lives. Business loves opportunity but hates uncertainty. Georgia would get a head start in the region if parliament were to pass some carefully considered regulation about it connected with tax and other issues. Bitcoin will make transferring money across borders much cheaper, in fact free. That could be useful for those who work abroad and the relatives they help back home. Credit cards and buying things on-line can be a challenge for people in Georgia. But more and more catalogues and websites are accepting Bitcoin and the transfer costs are zero.

So those who figure out bitcoin and what it means for their life and their business will benefit because this movement will only grow stronger. And as always there will be people who fear it but in several years, it will be integrated into their lives just the way it will be integrated into everybody else's lives. Just like the internet.

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