Bitcoin: Virtually Uncontrollable?
With the increasing popularity of Bitcoin, governments around the world began to take notice of its existence. They, in most cases, have some difficulty in understanding the concept behind this virtual currency. These governments, have created initiatives to try to control Bitcoin somehow. But can Bitcoin be regulated? In this article, we will examine some points of the Bitcoin ecosystem and the possible forms of regulation.
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How does Bitcoin work?
In order to understand how bitcoin network is controlled, it’s necessary to know how it works. If we don’t go deep into the technological aspect, bitcoin is just like an app which offers you a bitcoin wallet through which you can receive or send payments in the form of bitcoins. All bitcoin transactions are recorded in a unique ledger known as blockchain. This allows you to verify the authenticity of every transaction. This validity of transactions is protected further by digital signatures matching with the sender's address, enabling users to get full control of sending bitcoins from their addresses. Moreover, anyone can work on transactions with the help of computing skills of special hardware and get rewarded for this. This is called bitcoin mining.
So, it can be said that bitcoin miners have control over the bitcoin network. Therefore, although bitcoin mining is mostly done individually, big companies have been founded to do it and obviously, they are interested in controlling the bitcoin network. Some of such big companies are Blockchain, Coinbase, Circle and BitPay.
However, it’s the individuals and organizations mining the bitcoins that are the real strength of bitcoin network because they ensure the integrity of the cryptocurrency. These are the entities that are after developing increasingly powerful ways to “mine” new bitcoins.
As an individual interested in bitcoin mining, you can do it alone or join open “pools” where resources are combined to improve odds.
Bitcoin processing network
The Bitcoin processing network is a public record of transactions made between anonymous accounts. This means that all transactions are public, but no one knows who are the holders of the accounts participating in these transactions. The network is based on a peer-to-peer concept and spread all over the world in several nodes. So, there is no centralized control mechanism inside the network that could be used for screening or regulate these transactions.
If a transaction is made only within the Bitcoin processing network, i.e. a Bitcoin wallet to another Bitcoin wallet, it is virtually impossible to be tracked or regulated. It is a fundamental concept of the Bitcoin processing network upon its creation. If a service or product is traded through this method, no records would exist to connect the real operation of buying and selling with the virtual payment transaction.
If we are looking at Bitcoin only as the set of transactions made between different addresses belonging to this decentralized and global processing network, there is no form of regulation possible within this transaction system.
The transactions in the Bitcoin network cannot be traced in its pure form, as mentioned in the previous section. But when it comes to transactions made with an Exchange, the story may be a little bit different. And this is what most of the regulatory initiatives focus on.
They propose to serve as a middleman between people. The exchanges need to create their own systems with specific user control; their software works outside the blockchain. The deposits coming from the Bitcoin processing network cannot be traced. Because of it governments are creating rules to have access to this register of members of the exchanges. Thus many countries began to demand more information about the exchanges that take place on their territory, such as a complete record of users involving their address and other id details. Theoretically if any wrongdoing is done by someone who owned an account at some Exchange, the Exchange would provide this information to the appropriate law enforcement department. It could begin to trace the outgoing transactions from all accounts linked to this Exchange. It could also look within the blockchain because it would know the source address.
This type of regulation is something that should be looked at favorably by the Bitcoin community. It helps to restrict the use of the network for criminal or even terrorist activities. But this could also enable governments to exert control over financial operations of its citizens. Just like in the case of the traditional banking system.
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