Michael CerulaMr. Benham GiessHonors Government and Economics19 December 2017Bitcoin: Digital Gold?Many people have heard of bitcoin, but do not know much about it.
Bitcoin is a cryptocurrency, or virtual currency, that works on a peer-to-peer network, meaning it has no government backing. Investors like bitcoin because there is no middleman and transactions are not tied to the user’s identity. There are many other reasons that it was created, but those are the most important two. In spite of its recent rise in popularity, bitcoin will not be a long-term success due to its unfamiliarity to the public, its price fluctuation, and its prevalence in the black market.Bitcoin was created in 2009 by an unknown person or group, who goes by the alias Satoshi Nakamoto. Nakamoto created this digital gold so that users could make transactions without a bank as a middleman. This also means there is no country backing this as a currency. Many people are wondering how they can get their hands on the new currency, and the answer is that there are three ways to acquire it.
It can be bought on a marketplace called a bitcoin exchange, exchanged for an item or service, or it can be mined. In order to mine, you must first buy a special computer. This computer will solve complex math equations, which reveal bitcoin as they are solved. The more coins that are mined, the more complex the equations become. There are about 21 million coins that can be mined in total until 2040, and about 12 million have already been found. These limits are in place to prevent inflation. When buying bitcoin with real money, the money must be deposited through an online payment company or directly from a bank to a third-party website. In order to make a purchase, one can place an order.
This concept is similar to the concept of stock trading. In order to use bitcoin, one must download a virtual wallet to store his balance on a phone or computer. This will ensure that when one purchases bitcoin, it will go directly to a virtual wallet. Once the bitcoin is in the wallet, a purchase is ready to be made. When one is seeking to make a purchase, he can send a private key that is made up of letters and numbers. This is just his currency disguised, so no one will know who he is. The seller then receives the key and decodes it. This transaction takes only a few minutes to process.
There are many reasons why people do not invest in bitcoin, but the main one is that they do not understand or trust it. The media will have to help build popularity and knowledge of the new currency if it is going to succeed. Based on what they have heard, many people see it as an unsafe and unpredictable investment. While the second may be true, bitcoin has been treated as a “legitimate financial service” by the Federal Bureau of Investigation. While this does not mean the United States is backing it, it does illustrate that cryptocurrencies may someday have a chance at becoming major currencies.
Another reason investors avoid bitcoin is because there are not many major companies accepting the new currency. A few companies, mostly in the tech industry, have adopted the currency, including Dell, Microsoft, Expedia, PayPal, and REEDS Jewelry. Having legitimate companies accepting bitcoin could spur other industries and the general public to accept it as well. The price of bitcoin can fluctuate a lot from day to day, sometimes even hour to hour. In November of 2013, the price of bitcoin began to rise. This was great, until a month later when it began to slowly decrease. This kept on going until until May of 2016, when bitcoin’s rise began.
Since then, its price has been on the upswing and has only fallen twice since then. Both times were slight dips followed by steady growth. Just as the price of bitcoin has exponentially risen, it could decline to previous levels.Bitcoin is popular on the black market and the dark web because of its ability to be untraceable. Unlike the dollar, bitcoin has no physical trace.
The only records of transactions made are on addresses. These addresses are made up of 30 letters and numbers, which have balances that increase and decrease according to their block on the blockchain. A blockchain serves as a public record where the digital coins are stored. This means that anyone can see the amount of bitcoin available at any time, and that it will be hard to hack because there is no central version of the information. Some may view bitcoin’s recent rise in popularity as only a fraction of its potential because of the lowered chances of fraud. Merchants are protected from fraud while customers are protected from identity theft.
Merchants are protected from fraud because bitcoin is not refundable, meaning all transactions are final. There is no identity theft because the transactions are untraceable. Overall, there are many pros and cons to using bitcoin as a currency.
Pros include anonymity and security. Cons include unfamiliarity to the public, fluctuating prices, and ability to be used for illegal purchases.The cons outweigh the pros in the case. Bitcoin is little understood in the realm of the public, and is a hard concept to grasp. Many people will not be able to understand how much of the system works, so it will be harder to allow it to catch on.