Cryptocurrency Bitcoin simplified

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Of the many cryptocurrencies, currencies that are based on computer generated encryption, Bitcoin is the quickest growing and most popular, leaving some wondering about the function and legitimacy of it.

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Bitcoin was introduced in 2009 by a mysterious computer programmer with the alias Satoshi Nakamoto. Since then, the currency has seen an explosive but volatile exponential growth, from one bitcoin valued at $0.06 in 2009 to one bitcoin costing $9,000 in 2018.

Like traditional forms of currency, Bitcoin can be traded and exchanged, and is “minted” through “Bitcoin mining.” The simplified explanation for this process is that computers, programmed by their users, compete for solving “blocks,” which are hundreds of pending Bitcoin transactions. The first computer to solve a block is awarded a sum of Bitcoin. Then, its solution is added to the “blockchain,” a centralized chain of transaction histories known to all computers on the Bitcoin network.

Thus, Bitcoin is almost impossible to rob, because the deed would involve rewriting the blockchain, which would mean the robber would have to control more than half of the global Bitcoin network.

Some businesses, like Expedia and Microsoft, already accept Bitcoin as a form of currency.

“It seems like everyone who is that the forefront of technology, like most of the Silicon Valley, has been drawn towards bitcoin,” said Matthew McDermott, an AP Government and Economics teacher. “So there obviously is a market for non-conforming and decentralized online currency.”

A major quirk of Bitcoin, unlike the Dollar or Euro, is that it does not have a central regulating agency. Since there is no Bitcoin bank, there is no “middle man” in Bitcoin exchanges. Bitcoin can be transferred from person to person without tax or fees, regardless of borders or whereabouts, almost instantaneously. However, the lack of a governing body also gives Bitcoin is volatile nature. Since there is no agency to monitor the currency, Bitcoin fluctuates rather wildly and unpredictably. For instance, from December 2017 to January 2018, Bitcoin crashed from $19,000 to $12,000.

“Compared to the stock market, there is not much people behind cryptocurrencies like bitcoin or ethereum,” said junior Ryan Cheng, who follows cryptocurrencies closely due to his blockchain-based business. “There is a massive interest in the stock market, but Bitcoin doesn’t have that, which gives Bitcoin its volatile nature. The lack of government regulation also makes it even worse.”

McDermott also shared his skepticism.

“I know a friend who had 25,000% returns [on bitcoin], which is just too much,” he said. “It feels like a bubble, and it does not suggest long term stability. I know there is a huge role for online currencies, but I’m just not sure that Bitcoin is the one. Usually the first doesn't win, the replications and improvements that come after the first one wins.”

Posted on February 12, 2018 .