After a recent sprint to the spotlight, Bitcoin (BTC) has the power to be a bank-crippling currency and libertarian godsend. Currently exchanging at over $800 per BTC, the relatively unknown unit has increased in value by over 5,000 percent in the past year. Investors, vendors, and consumers have taken notice.
Created in 2009 by a person or group under the alias Satoshi Nakamoto, Bitcoin is “the first decentralized digital currency … coins that you can send through the internet,” according to the official Bitcoin site.
But what is Bitcoin really? Is it a currency, an equity, or simply a network of online trading? It might actually be all of those at once. In many ways, it is comparable to Napster, which provided a service as well as a networking medium.
Bitcoin can be bought directly at an exchange, the largest of which is “Mt. Gox”, or sent to a recipient. Bitcoins are “mined” much like other precious commodities, like gold. Rather than using a pickaxe and dynamite, however, Bitcoin is mined with computers solving increasingly complex math problems. Mining Bitcoin is extremely arduous and most non-upgraded consumer computers would actually lose money in the venture to get rich. For example, a Macbook Pro with 4G of RAM would generate four cents worth of Bitcoin in three months while consuming around thirty dollars worth of power.
As it stands, economists and politicians are torn about whether the stateless currency is a good idea. On the one hand, there is growing interest in the anonymous nature of BTC trading. In the past year, the black market site “SilkRoad” was seized by the FBI. Interestingly enough, the site only accepted BTC for payment of its illicit goods. Now the successor of SilkRoad, “Black Market Reloaded,” is operating exclusively with Bitcoin as well. Outspoken novelist and political activist Charlie Stross remarked “Bitcoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind — to damage states [sic] ability to tax and monitor their citizens financial transactions.”
As the crypto-currency gains steam, banks and credit card companies are beginning to lash out in opposition: the online currency trading and payment system essentially eliminates the middle man in payments and antiquates money-holding companies. For this reason, many Bitcoin startups are unable to do any business with the banks in their area because they are seen as competitors.
Nevertheless, many are optimistic for the future of Bitcoin and are seeking to capitalize on its humble beginnings. Notably, the Winklevoss twins, who claimed to have been undercut while providing the groundwork for Zuckerburg’s social network Facebook, are estimated to own 1 percent of all Bitcoins. The twins estimate that the Bitcoin market could eventually surge to around $400 billion.
Along with the aid of financially well-endowed optimists, Bitcoin has received a large boost from Overstock.com, which recently decided to begin accepting BTC as a method of payment. CEO and Chairman Patrick Byrne has lauded the currency for its value retention and highly touted security: “We want a money that some government can’t just whisk into existence with a pen … It lets you out of that world where you have to store your money with instutions you don’t trust.”
THE EDITORS: Also how green paper has value.
Many have claimed that Bitcoin has no real value; however, in the rapidly expanding world of Bitcoin, value exists because people say it does. People are willing to pay for products using the digital coins, therefore the coins are worth something. It may be difficult to accurately assign a dollar, yen, or pound equivalency to BTC, but the social network of people who purchase and trade coins day in and day out assign value to their currency. As that population grows, Bitcoin will become increasingly difficult for the economic world to ignore.
—Chris Donaldson is a senior studying computer science and physics
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