No country issues it. No bank holds it. No institution backs it. No coins (or bills) even denote it.
Bitcoin is cryptocurrency – entirely virtual, transacted almost exclusively online, it exists only in digital form, its value determined wholly by the market.
Since its inception in 2009, Bitcoin has been a curiosity for many, and a mystery to many more. After all, can a currency that exists purely online even be real?
The answer is yes. Yes, it can.
In fact, its value is very real. It recently surged to well above $2,000 USD – more than doubling its value in one year. One financial analyst at Saxo Bank predicts its value could hit $100,000 USD in just ten years. At the same time, its value can fluctuate wildly. In May 2017, for example, it took a dive of more than $500 in just one day.
So how exactly does Bitcoin work?
Bitcoin can be obtained either by selling goods and services, purchasing it via Bitcoin exchange or private seller, or ‘mining’ it. Because the currency is not centralized, it relies on computers provided by Bitcoin miners to perform and validate its transactions. It is the Bitcoin miners who provide the computational machinery who are then compensated in the actual currency, from transaction fees and newly minted Bitcoin currency.
Bitcoins are kept in individual online “wallets” that enable each respective owner to receive, store, and send bitcoins to other wallet owners. Each wallet has an address to which its owner has a private key. And while each wallet is private, every Bitcoin transaction is logged in a blockchain, a public record of every Bitcoin transaction.
The advantage? Affordability. Convenience. And security. Compared to banks and credit cards, transaction fees are negligible, buyers and sellers can conduct transactions instantly across international jurisdictions, and there’s no risk of the funds being seized by a third party.
So who’s using Bitcoin? It’s actually hard to say, because much of the Bitcoin community remains anonymous and widespread. One study suggests that the average user is 33 years old and lives in the United States. Even so, while there is a committed group of core users, Bitcoin’s popularity continues to grow, especially among more volatile economies such as Venezuela, Nigeria, and even South Korea.
But, is Bitcoin having a significant effect on the economy? After all, it’s available in every jurisdiction in the world, giving everyone the potential to buy and sell goods and services on a global scale. Bitcoin advocates argue that because it’s secure, can’t be counterfeited, and can scale according to demand, it could soon become the de facto standard for international trade. On the other hand, its skeptics say that because the value of Bitcoin is so volatile, it’s virtually impossible to use it as a standard currency for ongoing trade.
With its extraordinary growth in value in less than decade, it seems that Bitcoin is here to stay, at least for now. But, with more than 700 cryptocurrencies in circulation today, who knows how quickly that could change? How we value and define it today could well be very different in the days and years to come.
What will blockchains mean for your business, and for your technology infrastructure? Mougayar’s book is a reminder of the immense possibilities for change in the way online transactions can be enabled. Cogeco Peer 1, too, is preparing for this massive ground shift in technology innovation. Stay tuned – more to come!
> Download ‘The 10 Layers of a Blockchain’ Infographic now