Bitcoin has been in the news more than ever. Some experts are saying it’s going to become the next big thing to change financial markets. Others say it’s a passing fad that’s not worth anyone’s time.
But before we get into the arguments, what the heck is a Bitcoin anyway?
Bitcoin is a type of cryptocurrency. What is cryptocurrency? According to Google, it is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”
This means that much like paper money, which has no true intrinsic value, crypto currency’s value is determined by perception. There are some fancy economic principles behind these ideas but just because crypto currency exists only digitally, doesn’t mean it can’t have real-world value.
Bitcoin was the first decentralized cryptocurrency, meaning no government, private entity or institution could create, hold or assign value to the currency.
Bitcoin’s Mysterious Origins
A group or individual known as Satoshi Nakamoto created the underlying software and code for Bitcoin in 2009. That’s right, we don’t know who (or what) they are. The origins of Bitcoin sound like a plot from an 80s sci-fi movie.
Nakamoto created a system that would track every Bitcoin transaction in a “ledger” known a blockchain. For a more detailed look at what makes blockchain work, check out this TED talk. Bitcoin transactions are done directly between two parties without a bank or other institution regulating the value or means of the transaction. These transactions are public and every transaction carries with it the information of every previous transaction. This makes it practically impossible to hack, modify or falsely generate bitcoins.
When it was initially released, bitcoin saw slow growth in usage. Nakomoto was said to have generated over 1 million bitcoins. In the early days, people were giving out bitcoins for free. One person was said to have made a trade of 10,000 bitcoins in exchange for 2 pizzas. Those 10,000 bitcoins are now worth over $20 million.
The value of bitcoin has seen dramatic rises and falls. In 2014 a digital wallet provider called Mt. Gox that processed over 70% of all Bitcoin transactions, went bankrupt. This devastated the Bitcoin market especially since the coins held by Mt. Gox were likely stolen. The value of this breach was 7% of all bitcoins in the world and was valued at $473 million
In 2013 it was estimated there were 300,000 to 1.3 million Bitcoin users. In 2017 it is estimated there are between 2.9 and 5.8 million users.
This past week, the value of a Bitcoin passed $3,500.
Today there are dozens of other cryptocurrencies in use, many of which use the same base code as Bitcoin to generate and store their information. There also continues to be many changes and improvements made in the digital currency world. Even today, an update was made to Bitcoin that allowed faster and larger transactions to take place. We also reported on our most recent Between the Bytes episode that Bitcoin is splitting into Bitcoin cash.
Bitcoin’s future still looks somewhat uncertain to many financial experts, but the American paper dollar was also met with hesitation, fear and skepticism.
Although you may not be using Bitcoin at your local grocery store, the day may come when your neighbor and his friends will.
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