by Noah Riggenbach, business manager
Once a topic seldom discussed by the general public, Bitcoin has recently reached new heights in popularity. As a result, many people are left wondering, “What is Bitcoin and is it viable?”
Investors and economists consider Bitcoin part of a much larger dialogue on cryptocurrency. Cryptocurrency is an all-encompassing term for any digital currency that exists decentralized—having its value separated from a single party’s backing. Bitcoin was the first cryptocurrency, beginning in 2009, CNBC reports. Since then, many other cryptocurrencies, collectively referred to as “altcoin”, have entered circulation, including Ethereum, Litecoin, and Ripple, to name a few of over 1,000, according to investor reference coinmarketcap.com.
While cryptocurrency is completely digital, it’s valuable because of the invention known as blockchain, which was created in tandem with Bitcoin. According to Investopedia, Blockchain works like this: each transaction made with a given cryptocurrency requires validation. With normal money, this validation is done by banks to assure that each transaction is worth what it says it is. Validation with cryptocurrency requires the processing of complex algorithms. After a set number of these transactions are verified, a new coin, a single unit of a given cryptocurrency, is made. This means anyone with a computer can have a shot at validating transactions in hopes that they might be the one to complete that set, and gain a coin.
When these new coins are created, they are added to the total market cap. This means there is a limit to how much cryptocurrency there can be at any given moment and the value of cryptocurrency is always changing. When more coins are made, more transactions are carried out, more validations need to be processed, and creating more coins becomes a longer process.
To see blockchain in action one need look no further than Bitcoin itself. It began valued at one dollar per unit back in 2010 and reached its all-time highest value in December of 2017 at over $19,500 per unit, as displayed on coinmarketcap.com.
Other than blockchain, the other element that makes cryptocurrency so valuable to investors is its dramatic changes in value. Because no centralized party regulates the value of the currency, it is worth exactly to investors what their buying and selling behaviors dictate. The market is fully at the mercy of the principle of supply and demand.
This generally leads to two camps of opinion on cryptocurrency, one favorable and the other hesitant. The former appreciates the removal of a centralized banking system, believing that centralized currencies are unreliable. They are known as fiat currencies, backed only by faith that another party will honor their value. Supporters of cryptocurrency find security in the standard of value that blockchain provides. The dynamic value changes of the cryptocurrency market also promise skilled traders profit: some investors have quit their jobs to day-trade coins, detailing their ventures on platforms like Reddit. Finally, due to its digital nature, cryptocurrency has the ability to help users retain their anonymity with their online exchanges.
The other camp is concerned with the same topics. But regarding anonymity, the hesitant crowd asks if it is safe to have anonymous transfers over the internet. The introduction of cryptocurrency to the Web certainly has made purchases from the online black market much easier, according to reporting from Vice. The dynamic market changes also steer away potential investors. This was evident on January 16th of 2018 when the top 20 coins all dropped in value by over 10% (some nearing 20%) within 24 hours. According to CNBC, the enormous drop was the first market plummet of that scale and was as a result of the South Korean and Chinese governments reviewing their policies on cryptocurrency regulation. The most important fear of the hesitant crowd is the complete digitization of a currency. Investopedia reports that some economists have been referring to the market as a “Bubble,” implying that the fate of cryptocurrency will be similar to the nightmare of the 2008 housing crisis.
Cryptocurrency in its current state is a completely new economic dynamic with big ambitions and big risks. It aims to be something centralized money cannot be: decentralized and safe. With its growing popularity, it is beginning to look as if it may be here to stay.