Infographic: Pepijn Barnard, text: Josta Bosma. Source: Financial Market Infrastructures and Payments: Warehouse Metaphor Textbook, Ron J. Berndsen (2018), warehousemetaphor.com. The reader is guided through a metaphorical warehouse in which a guide explains how payments and securities transactions work behind the scenes. The author is Professor of Financial Market Infrastructures and Systemic Risk at Tilburg University.
Bitcoin: trusting the network Digital currencies use blockchains. This is where all points of the network are interconnected. Each point is a user/computer in the network. Transactions are approved by each point. This eliminates the need for a centralized party and the network will continue to function if a user/computer is lost. The Bitcoin solves all four problems, but also creates new ones, so the question is whether this is really the currency of the future.
Bitcoin solution
All transactions that have ever been made can be found in the system. If a coin is sent twice, the one that was sent first counts.
For each transaction, a new address is created by the recipient. This makes the recipient untraceable.
Privacy
No counterfeit money
The number of digital coins has been set at 21 million. Because of this, it is not possible to create an infinite number of new coins.
There is no longer a third party involved in transactions. There is no centralized party in the network.
No intermediaries
Limited issue Bitcoin problem
Very slow
Inefficiënt
Only 4 to 7 transactions can be done per second, much fewer than in the centralized system. This makes this network much slower. The network uses a lot of energy. This is due to the computing power behind the system.
In order to make changes in the network, 51% of users must agree. If the majority of the network ends up in the wrong hands, the possibility of counterfeiting exists.
51% attack
The computers that perform all these calculations (the computers of all points) use electric energy. One transaction uses as much energy as 30 households in one day.
Tilburg University Economics and Management | Research Special | New Scientist | 11
