Bitcoin is often considered to be the first cryptocurrency, an alternative to government-regulated forms of currency. Once peaking at an over $1,200 per Bitcoin exchange rate in December 2013, according to Investopedia, the volatile payment method has become a hot topic of discussion amongst industry analysts and business owners alike. As with any new and buzz-worthy technology, some dismiss Bitcoin as a fad while others believe it to be the pathway to the future of payment dynamics.
“The value of the currency is set by the demands of the community.”
Satoshi Nakamoto introduced the world to Bitcoin in late 2008, before unveiling a working product in January 2009. While not much is known about Nakamoto’s true identity, the system was designed as open-source, so no one individual or body would necessarily own any of the coins. The value of the currency is set by the demands of the community, according to the official website for the currency.
Bitcoins themselves are generated through a process referred to as mining, the website detailed. The Bitcoin system compiles a portion of recent transactions into blocks and presents the community with difficult math problems regarding the information in the block. Users race to solve the problem, and the first individual that is able to do so is rewarded with Bitcoins. This not only aids in continuing to validate the Bitcoin network but also introduces new Bitcoins into the field. Bitcoins can also be earned by exchanging nationally recognized money for coins or accepting the digital currency as payment for a product or service, the source noted.
New innovations in payment processing are always worth noting, especially as the world moves away from the traditions of physical coins and paper money and toward the Internet age of spending. Cryptocurrencies like Bitcoin are able to be sent and exchanged anywhere around the world at any time, the Web page went on. This removes the restrictions set by most banks for where money can be sent or traded and how much of a delay is put in place. Additionally, Bitcoin currently does not have a fee system related to microtransactions unless purchase amounts are incredibly small, taking away many additional charges that stem from credit and debit payments, the source stated.
Of course, if money is involved, there are always risks to account security. With Bitcoin, however, thieves are not able to obtain your purchasing information from vendors, as the anonymity of the system will not leave a trail back you to unless expressly given. This can also be helpful with identity protection, since the Bitcoin network will not reveal names, addresses, or contact information that is not meant to be shared, the website indicated. Instead, Bitcoin transactions register to a digital location of the consumer’s account, so that in the event of a breach, only the account will come into risk and not the identity or assets of the customer as a whole.
Bitcoin aside, the technology behind the coinage is getting just as much attention. Bitcoin transactions contribute to what the website refers to as a block chain. This public ledger updates itself several times an hour to track all transactions of Bitcoins so a specifically identified coin cannot be used more than once, much in the way a customer cannot spend the full value of a gift card twice. Using this technology, coin holders are able to validate the legitimacy of their wallet. Bitcoin also makes its code available to the public on its development page, openly welcoming users to adopt and create their own spinoffs of the system.
Being relatively new in comparison to cash and credit purchase methods means that Bitcoin - like all cryptocurrencies - is not without its flaws…
The primary issue facing the use of Bitcoin is the lack of regulation. Currently, Bitcoin is not regulated by any legal body and is thusly allowed to rise and fall in value based strictly on supply and demand. At the time of this series, the Bitcoin exchange value for United States currency is roughly $212.00 for every one Bitcoin. This is difficult to specify as the value of Bitcoin fluctuates by the second. There doesn’t appear to be a push for government involvement or systemized regulation just yet, however. Bitcoin’s community driven FAQ page details how the system is run now, where several development administrators have the ability to create and monitor coins under a strict understanding of how many coins may be generated at any given time. This not only prevents an excess of available coins, i.e., printing more money than the market should, but also hinders the possibility that a group or individual could randomly create additional coins for personal gain.
Even though Bitcoin is gaining ground and attention, it has yet to become reliable enough to use as a sole means of purchasing products and services. As an investigative piece for CNN Money, technology reporter Jose Pagliery spent 24 hours in New York City trying to survive on Bitcoin alone. The experiment presented many struggles for Pagliery, including traveling large distances between businesses that accepted the currency, the technical issues of exchanging Bitcoins with vendors and the public’s unwillingness to exchange United States dollars for his digital wallet.
“If I’ve learned anything from this experience,” Pagliery summarized, “it’s that Bitcoin is interesting, it’s really cool to use, but it’s a little bit impractical.”
Cryptocurrencies like Bitcoin come with the added potential of being used anonymously, leaving behind only an account address associated with the wallet funds. Removing the consumer’s liability by eliminating a paper trail may sound appealing to some, but the nefarious possibilities should be clear. Gawker Senior Writer Sam Biddle has focused on Silk Road, an Internet marketplace that allowed customers to purchase illegal drugs (and sometimes weapons) using Bitcoin’s anonymity to avoid prosecution. Several attempts have been made to shut down Silk Road and similar markets that have surfaced in its place, but occasionally another online vendor appears to keep the illegal trade going.
All of these factors make it difficult to predict Bitcoin’s future. Even if the Bitcoin market dissolves tomorrow, the innovation in product purchasing will remain. Since its open source code release in 2009, Bitcoin has inspired and been followed by multiple cryptocurrencies onto the Internet, including Litecoin and Dogecoin. Using similar systems to Bitcoin, such as the block chain open ledger, these and other competitors boast new variations to the capabilities of these cryptocurrencies, keeping the market fresh with opposition, forcing each business to evolve.
It is unclear whether Pagliery’s experience in New York is to be expected of all consumers looking to take the digital leap to Bitcoin. Jonas Chokun, author for BitcoinValues.net, explains how more industry leaders are adopting Bitcoin as an acceptable payment method. Amazon, Sears, eBay, PayPal, Dell and Expedia are just some of the companies now allowing customers to pay from their digital wallets. With the proper use of mobile applications, consumers can present a QR code at the point of sale that can be scanned to complete their purchases and have the amount deducted from their account based on the current market exchange rate. For now, the cryptocurrency is here to stay, although much like its own exchangeable value, it is possible that this could change overnight.