Technology seems to be marching along, and the global community is becoming increasingly interconnected through the internet. Among the advances is a move towards creating a cashless society in which all monetary transactions are conducted online. While not everybody agrees that this would be a good thing, there is no question that in many ways it would make life easier for many. Enter Bitcoin, which launched the world’s first decentralized cryptocurrency (also referred to as digital, or virtual currency) in 2009.
Bitcoin uses blockchain technology, which is a public ledger of all transactions. Every transaction is an individual block in the blockchain, as are balances owned by holders of the cryptocurrency. As a public ledger, the blockchain can be seen by anyone at any time. Each account owner has a personal key to his Bitcoin account, enabling him to make transactions, and then those transactions become part of the public blockchain.
Over the past year, the price of Bitcoin has skyrocketed. At the beginning of October 2016, BTC/USD was $614. On January 2 the price broke the $1000 barrier, in early May it passed $2,000. The price continued to rise, peaking at just under $5,000 on September 2 before dropping to its current level in the $3,900 range.
The blockchain technology is excellent for Bitcoin and other virtual currencies, in that it is very difficult, if not impossible to hack (nobody has succeeded so far), and the public accessibility of the blockchain helps insure against fraud and interference by third parties. A second advantage is that the fees for online payments with Bitcoin are generally much lower than those of more traditional forms of online payment. To date, hundreds of thousands of businesses worldwide accept Bitcoin as payment for goods and services.
Being a decentralized currency, governments have not tried to regulate Bitcoin, in part because there is not a single prominent figure or deciding vote with the ability to veto. Rather, decisions are made by general consensus, and its founder is an anonymous person (or group of people) known to the world by the pseudonym Satoshi Nakamoto. This has played a significant role in the increased value of Bitcoin.
Despite all that, many analysts are very cautious when it comes to Bitcoins. The price rose so quickly (more than 700% from October 1, 2016 to September 2, 2017), that many are waiting for the proverbial “bottom to fall out.”
A second concern is that eventually the balance of supply and demand will shift, because there will only be a total of 21 million Bitcoins made available, of which there are already more than 16 million. At the same time, other cryptocurrencies, such as Ethereum and Litecoin, provide an unlimited supply of digital coins, so they may be able to overtake the industry-leading Bitcoin in the coming years.