A Bitcoin for Your Thoughts - What Happened Week

By Tanya Silverman

Keeping up with Bitcoin is challenging, but exciting, as with each new headline about this peer-to-peer digital currency hits, we find its outlook and volatile value, fluctuating wildly.

On Wednesday, April 10, Bitcoin underwent an epic rise-and-fall in value: $266 to $105. From there, it increased to $130. As of 12:08 AM on April 12, Bitcoin was trading at about $97.

Mt. Gox, the world’s most prominent Bitcoin exchange, was the victim of multiple cyber attacks earlier this month. At first, it appeared that these hacking efforts caused Bitcoin value to drop drastically, but Mt. Gox claimed that the real reason for the decrease was that thousands of new users were signing up and there was too fast of an exchange.

Whether it was hackers or over-usage, or a combination of both, more people are continuing to sign up.

Photo by Ben Ostrowski.

Stepping back from these recent headlines, it was only two months ago that Bitcoins were valued at $20. Even further back when Bitcoins began in 2009, they were valued at five cents apiece. It is undeniable that this virtual currency has made incredible progress, even with such intensive fluctuation.

When Bitcoin was first introduced by the mysterious Satoshi Nakamoto (which is a pseudonym — the actual identity of Bitcoin’s creator or creators is unknown), it was set up as a novel form of currency that uses cryptology. Delving into the details of Bitcoin dynamics can become quite technical and esoteric, but to highlight some fundamental points, this economy is not regulated by any central banks or governments, and operates by software coding. The absence of closing times, fees, change rates or central authority related to Bitcoins has helped the currency to attract many users.

Bitcoin usage is anonymous, and some people have taken advantage of this by spending this currency on things like illegal drugs or gambling with it on an unregulated site. Of course, humans have long done all types of illicit acts with their currency (regardless of whether it is government or bank regulated). Apart from such indulgences, a growing number of businesses accept Bitcoins; without having to exchange Bitcoins for formal money, people can use their virtual currency directly to shop for Alpaca socks or handmade cosmetics, read e-books, book hotels, or order pizzas.

Becoming involved in trading and spending this digital currency is trending, but what will ultimately become of Bitcoin? Even though it is an ever-developing focal point of today’s media, views differ greatly about its destiny.

Some do not predict a bright future. Megan McArdle, former senior editor of The Atlantic, believes that this crypto-economic system is a current trend that is bound to topple. Using her economic expertise, she writes that because Bitcoins are subject to be traded with dollars or other currency, the inherent fact that they need to be backed by the “real economy” challenges their legitimacy. She also contends that governments will ultimately find a way to regulate Bitcoins.

Others have more faith. Jeff Berwick, a media entrepreneur, sees Bitcoin as a worthwhile investment because it provides an alternative for people who are fed up with the power central banks hold and their ability to print infinite cash. In fact, Berwick is planning on opening the first two Bitcoin ATMs soon, which will be in Los Angeles and Cyprus.

Living in the modern, developed, interconnected world, we all realize how the internet has transformed our lives in countless ways; Bitcoin is a singular example of such. As the hacking and fluctuation and mining and trading goes on at the moment, the general public has the option of becoming intensely involved in the intricacies of the Bitcoin universe, or to simply function without ever having heard of this phenomenon.

The fate of this cyber platform can go in any direction. We could start using Bitcoins to pay for our bills, education, food and entertainment. However, many different factors, from plummets in value to lack of security, could cause this system to completely crash and burn before it can succeed as a lasting, stable currency.

More fluctuation in value is likely for the time being and viral news are likely to continue as the Bitcoin saga unfolds. Whether the implementation of Bitcoins is a short-lived craze or long-term economic revolution (or it remains as a niche economy that is somewhere in between) we will have to wait and see.