The term “Bitcoin” has been in the news lately; and its value is rising with volatility. Bitcoin is the digital currency that thrills nerds, inspires libertarians and incites the passions of economists who debate the value of money made from nothing but ones and zeros. Devotees watch the fluctuations of bitcoin’s price with a fanaticism typically reserved for college football scores while visionaries gush about the world changing possibilities of money free from government control.
Bitcoin was first mentioned in 2008 in a paper published under the pseudonym “Satoshi Nakamoto “. Bitcoin is a cryptocurrency, so called because it uses public key cryptography to process and verify payments.
Mining a Bitcoin is analogous to gold miners expending physical energy to add gold to circulation, but it is CPU time and electricity that is expended. Each time a miner find the solution to a certain mathematical problem (and thereby creating a new block), a new 25 BTC is “minted”, awarded to that miner and entered into circulation. This quantity on schedule to halve every 4 years until all 21 million bitcoins are released.
The last one year, however, is when this digital currency made massive headlines. Services such as Okcupid, Baidu, Reddit, Humble Bundle, Foodler, and even Richard Branon’s virgin galactic began accepting it as payment.
In August, Germany announced that Bitcoins can be used for the purpose of tax and trading in the country. In October, FBI shut down the silk road online black market and seized $ 28.5 million worth of Bitcoins from the alleged mastermind .on December 5, China central bank barred financial institutions from handling Bitcoin transactions in the country similar to the bank of Thailand which deemed all Bitcoin activities as illegal. But through all these ups and downs, the price of Bitcoin reached on all time high of nearly $1,200 in November, up from $14 at the start of the year.
Bitcoin has become accepted as a form of payment among a large group of people in many countries, therefore if we focus on the economic definition of money and not its political one ‘it should be seen as a currency’. But the governments are worried about Bitcoin’s potential to be used for money laundering. Although it was launched in 2008, regulators around the world have yet to decide how to treat the currency and its market.
“John Quiggin,a professor of Economics at the University of Queensland, Australia, noted that since Bitcoin has no intrinsic value, it is “ perhaps the finest example of a pure bubble ”. Whether it bursts or floats depends on how long it can defy pure economics.
© By Mayank Kumar