Bitcoin passes $1,000 mark: will it take over the world?
Value of ‘cryptocurrency’ roars past $1,000 mark due to publicity and demand from China
THE value of the Bitcoin surged past the $1,000 mark today as the virtual currency basked in publicity generated by last week’s US Senate hearing and increased demand from China. Business Insider says a comment by Federal Reserve chairman Ben Bernanke that digital currencies such as Bitcoin “may hold long-term promise” also contributed to its spectacular 81 per cent rise in value in recent days. But what exactly are Bitcoins and do they pose a threat to established currencies?
Why are Bitcoins in the news?
There are several reasons the “cryptocurrency” has hit the headlines in recent days. TechCrunch‘s Alex Wilhelm says once the currency hit the $600 mark earlier this month the press started taking an interest. “It has never been worth more, or generated more headlines that I can recall,” he wrote. “The two are likely connected.”
Media attention was also focused by a US Senate hearing on Bitcoin which was held last week. Users of the cryptocurrency were “looking to convince lawmakers of its legitimacy”, says Bloomberg. The hearing was sparked by the closure of the Silk Road website, whose users were required to use Bitcoins to pay for illegal drugs purchased on the site.
Who invented the Bitcoin?
The identity of mastermind who invented Bitcoin has been shrouded in secrecy. The concept entered the public domain in 2008 and was credited to a “pseudonymous developer” known as Satoshi Nakamoto. It has been suggested – by Ted Nelson, one of the web’s founding fathers – that Nakamoto is the Japanese mathematician Shinichi Mochizuki. That claim has not been verified, but you can read a detailed explanation of Nelson’s argument here.
What is a Bitcoin?
This is where things get a bit complicated. According to the currency’s Wiki page it’s an “experimental, decentralised digital currency that enables instant payments to anyone, anywhere in the world. The Daily Telegraph says that a “full explanation” of Bitcoin and how it works, “would take several thousand words”. A rather more concise description, the paper says, is a “currency that only exists in cyberspace, with holders storing their stash in a virtual ‘wallet’ and making transfers over the internet.” ABC News offers an even briefer description: “If hard currency is like a record, then Bitcoin is like an MP3.”
Where do you get Bitcoins?
The world’s first Bitcoin ATM opened in Vancouver on 1 November. The machine allows “users to exchange their credits of the digital currency for cash and vice-versa,” says the BBC. If you don’t want to trade hard cash for Bitcoins, you can “mine” new ones.
How do you mine Bitcoins?
You won’t need a shovel. Bitcoins are “hidden amid a complex encrypted computer program”, explains ABC News. Users have their computers “working round the clock to solve a complicated mathematical problem in order to release new coins”. Of the 21 million possible Bitcoins, about 11 million have already been unearthed. You can also mine coins using your smartphone, says Know Your Mobile – but don’t expect quick returns. Eight hours of running a Bitcoin-mining app, unearthed just 0.0005 coins. That’s because finding new coins requires enormous amounts of computing power which has led some hackers to take over unsuspecting users’ machines to harness more power. The Bitcoin system is designed so that the work required to find new Bitcoins rises steadily as each coin is uncovered. “That makes the currency’s growth rate, also known as inflation, steady and predictable,” says ABC News.
How do you spend Bitcoins?
If you want to buy something using Bitcoin you need to make sure the seller accepts the cryptocurrency. If they do, you acquire the anonymous identification number attached to the seller’s ‘wallet’ then move coins from your virtual wallet to his or hers. The “anonymity” of these transactions has made the currency particularly popular with drug dealers, says ABC News.
Will Bitcoin replace existing currencies?
That’s a big question. The Telegraph suggests Bitcoin does present a serious challenge, saying: “Unless the issues that Bitcoin raises are addressed in a thoughtful and proactive manner by existing authorities, the disintermediating power of technology is likely to have a disruptive impact on currency systems and those that regulate and rely on them”. Simon Johnson, a professor of entrepreneurship at MIT’s Sloan School of Management, told Mashable that a Bitcoin “backlash” is likely as “governments and established financial institutions” fight to retain their supremacy. Bitcoin will “face political pressure and aggressive lobbying from big banks because of its disruptive nature,” says Johnson. ·