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The rise of Bitcoin

In this Wednesday, Aug. 20, 2014 photo, Jon Rumion, background left, talks with Michael Cargill at Central Texas Gun Works, in Austin, Texas. Rumion purchased two guns at the store using bitcoin. As states debate the merits of bitcoin, Texas is emerging as a vital testing ground for the digital currency. (AP Photo/Eric Gay)

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In this Wednesday, Aug. 20, 2014 photo, Jon Rumion, background left, talks with Michael Cargill at Central Texas Gun Works, in Austin, Texas. Rumion purchased two guns at the store using bitcoin. As states debate the merits of bitcoin, Texas is emerging as a vital testing ground for the digital currency. (AP Photo/Eric Gay)

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In the 21st century, the use of cryptocurrencies has been on the rise. Cryptocurrencies, digital assets that use cryptography to secure the transactions, have created a decentralized network of transactions. Bitcoin has been the leading cryptocurrency since its creation in 2009. After a record high value for bitcoin this past year, it has been put on the radar of not only financiers and economists, but the everyday man as well.

Bitcoin has been a complicated mystery since its release in 2009. It was created by the anonymous Satoshi Nakamoto, whose identity is not known. The creator could be a single person or a group of people, there is no way of knowing for sure. It is speculated that Nakamoto is a Japanese man, but again, this is not known positively.

What remains even more mysterious than the creator is how bitcoin works. The currency is not backed by a bank or national government; it is used on a peer-to-peer transaction basis. The value of a bitcoin is determined by the users and what they trade it for. The design of bitcoin is based on blockchain system, meaning it is traded through an anonymous online ledger. The complicated cryptography and the blockchain system prevents “double spending”, or using the same bitcoin to make multiple purchases.

But what is bitcoin used to purchase? In its early stages of being a currency, bitcoin was used for mostly underground markets. It was popular on the dark web and with drug dealers because of the anonymity of the currency. It has been used to fund large markets of underground weapons and drug trade. In 2013, the “Silk Road”, a $1.2 billion marketplace that ran on bitcoin, was closed by federal agents. Other similar marketplaces have continued to be created and financed by bitcoin, leading many economists and policymakers to question the need for the currency that facilitates illegal transactions.

As bitcoin has become easier to navigate and more widespread, more everyday folks and professional investors are taking advantage of its popularity. When the price of a bitcoin was set in 2010, it was equivalent to less than 1 cent. In 2017, bitcoin’s value increased, reaching the price of $16,000 for a single bitcoin. After a dramatic rise in early December, bitcoin began to go down again just before the new year. But economists and cryptocurrency titans are looking forward to the next year. Arthur Hayes, CEO of the BitMex cryptocurrency exchanges, predicts bitcoin to be valued at over $50,000 by the end of 2018. This speculated sharp increase in value is supported by the theory of supply and demand when fewer bitcoins are “mined” or created in the future.

Some fear that the rise in bitcoin is creating an unstable bubble since there is no backing to the currency. As it continues to grow, the bubble could have devastating impacts on the cryptocurrency marketplace. Other concerns about bitcoin surround the industries it has been fostering through the darker parts of the internet and what can be done to track and stop illegal dealings.

In terms of policy, the United States Securities and Exchange Commission has not approved exchange-traded products holding cryptocurrencies. The Commodity Futures Trading Commission designated bitcoin as a commodity and announced that fraud and manipulation involving bitcoin traded in interstate commerce under their authority. It is likely that certain states will even propose plans to accept bitcoin and blockchain technologies as the industry grows, but this concept is in its very early stages.

In the past year bitcoin has become dramatically more important as a legitimate method of currency. As it continues to expand in the future, it has left many bewildered in its meteoric rise. A better understanding of how bitcoin operates will lead to a better understanding of the future of cryptographic transactions and the reasons behind them.

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One Response to “The rise of Bitcoin”

  1. Mike on January 8th, 2018 3:51 pm

    How bitcoin works is the opposite of a mystery – it’s open source. You can literally look through their code if you want to. Someone didn’t do their homework. This article doesn’t do justice to the potential revolution that Blockchain technology represents. Cryptocurrency is designed to solve the problems that come with trusting banks and governments with our currency, which is what makes it potentially valuable.

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The rise of Bitcoin