In 2009, following the collapse of the U.S. economy, the first cryptocurrency went live. Bitcoin was invented and developed by an anonymous programmer, think tank, company (nobody truly knows) with the pseudonym “Satoshi Nakamoto.” Its purpose was to be a new form of currency — a new way of exchanging wealth that would be purely peer-to-peer and eliminate the need for middlemen or institutions, like our current banking system.
Bitcoin has grown in the past eight years into something more widely-known, more widely-used and more widely-accepted, but it is still very much in its fledgling stages. There are still plenty of people who do not know what Bitcoin is, how to use it, why it should be used or if it is worth investing their time and money in. There are also plenty of people who are leery of it and associate its use with the “dark web” and buying contraband items. Is this an accurate belief? Is Bitcoin something we should all look further into? Let’s explore the basics.
As of January 1, 2018, one Bitcoin was worth $13,536. That is an incredible ratio, considering how new the technology and concept of cryptocurrency is. This digital form of wealth can be purchased with real cash, by anyone with an Internet connection and some money. Bitcoin can be used to purchase anything globally, so long as it is being purchased from someone who will accept Bitcoin as a means of furthering the transaction. This first point is the reason Bitcoin is still not universally used. Not many people, comparatively, accept Bitcoin as a form of currency.
The main difference between Bitcoin and normal cash, besides the fact that it is digital, is the fact that it is publicly kept track of by people all over the world, instead of by one centralized institution or system. There is no Bitcoin bank, in other words. The wealth is transferred from person to person instantly, with no institution to collect on fees or extra costs. This all being said, the other unique component of Bitcoin and other cryptocurrency is the Block Chain, which is the digital, globally-distributed ledger that keeps track of all Bitcoin transactions and makes sure none of them are counterfeit.
So, who contributes to the Block Chain? They are called “miners,” and they started out as individual volunteers, with the computers and brains needed to solve a series of math problems in order to confirm each transaction. When someone makes a transaction through Bitcoin, it is recorded in the digital ledger. Once in the ledger, miners across the world can begin to solve the problem. Once the math problem is solved correctly three separate times, the transaction is deemed valid. So, why do these volunteers offer up their time and energy to confirm other people’s transactions? It is not just out of the goodness of their hearts. This mining process is basically a race to confirm the transaction. The first miner to solve the problem and confirm receives brand new Bitcoin for their trouble. Bitcoin they did not have to pay for with real cash! In a world where its value continues to increase, this is a valuable opportunity to take.
These days, with Bitcoin growing in value and usage, businesses have erupted and begun to take over this mining process. Now, something that used to be done in homes with laptops is done on massive computers within companies, and it has become a multi-billion-dollar industry. The faster and more advanced the computer, the more likely the company is to win the race to solve the problem and gain the prize Bitcoin. Once they have the Bitcoin, they can trade it, sell it and make more money off it.
What can be confusing about Bitcoin is the intangibility of it. If you have money in a bank account, it is intangible only until you decide to withdraw the cash equivalent, at which point you can actually hold that wealth in your hands. Bitcoin is completely digital, so it can be difficult to conceptualize the idea that it is worth anything. Take a Chuck E. Cheese® token, for example. You pay for it with U.S. dollars and then use it to buy goods and services (Skee-Ball and Whac-A-Mole). But, at the end of the day, if you still had five tokens left over, you cannot get your cash back. There is no Chuck E. Cheese token exchange. Bitcoin is like the Chuck E. Cheese coin, except for the very important difference of it being exchangeable for real U.S. money. If you decide it is time for you to let go of the Bitcoin you currently possess because of how high its current value is, you can do that. Companies like Coinbase exist to allow for this type of exchange.
Local resident Barry Hogan got involved in Bitcoin just one year ago. “I remember exactly the value of Bitcoin the day I decided to get into it,” he says. “It was $1,188.” Quite the successful year for Mr. Hogan, with Bitcoin going up more than $10,000 in value in less than one year.
“The uniqueness of the currency is that I can use it anywhere, any time, as long as I have an Internet connection, and it is immediate. There is no middleman, and the cost factors are different. When you exchange value in dollars in a store, you swipe your card and the merchant pays the Visa merchant fee,” he explains. “In the cryptocurrency world, the merchant does not pay the fee, but the sender pays the fee.” This fee goes to the miners who carry out the confirmation process and keep the Block Chain moving and the currency honest. This way, everyone involved with controlling how well and fast the cryptocurrency system works are the ones handling and receiving the money, and no one else.
There will never be more than 21 million Bitcoin in existence, and because of that lack of infiniteness, it will potentially always have value. Mr. Hogan continues, “In my opinion, Bitcoin will never be the transactional cryptocurrency. The mining fees associated with making transactions make it an expensive process for smaller, everyday transactions.” More recently, however, as more people have begun to understand the technology Bitcoin was built and released on and its convenience, new forms of cryptocurrency have come about. “These other cryptocurrencies were designed to work faster and not require so much of a process in order to become usable, which is what they call ‘scalable.’” Mr. Hogan asserts that if development continues as it has, he thinks somebody will come up with a scalable enough currency that anyone could walk into a Walmart or McDonald’s™, and the end receiver of that money will have enough confidence in it that it will become a transactional currency.
Until that time, Bitcoin will continue to be a way of exchanging wealth that lets people control their money and its system. Because it is in the hands of so many people around the world, there are setbacks to Bitcoin to keep in mind. It is still a volatile and unpredictable currency in how much value it holds, which changes daily. Governments do not tend to like the potential for economic disruption it poses, and, in some cases, they take matters into their own hands. In September 2017, the Chinese government ordered all Bitcoin exchanges in Beijing and Shanghai to submit plans for shutting down their operations and moved forward with their intent of shutting down trade of the currency. On the other hand, some governments welcome the change! Japan has officially recognized Bitcoin and cryptocurrency exchanges.
Only time will tell whether this new technology will take off and become something bigger than it already is. The growth it has experienced in less than 10 years is astounding, and its value continues to ultimately rise. If you are curious about cryptocurrency and the Block Chain, do more research! There are plenty of sources explaining this new digital phenomenon and you can decide for yourself whether to take a dive into the uncharted waters!