Since the hype this week around Bitcoin’s rise in value to over $200 and subsequent fall to under $100, it has a lot of people thinking about the feasibility of a digital currency. Or should I say resource. Or asset? It gets confusing. Typically, a currency is a method of exchange created and regulated by the political national entity that created it. In Bitcoin’s case, however, a main feature is that it is free of any association with a national or political entity making it attractive as an alternative currency in the case of countries like Cyprus (Going through some serious fiscal, Europe-shaking woes). It can also be “mined” (aka earned) for lending your computer’s processing power to completing transactions in the network.
Bitcoin was created with the intention of enabling immediate and secure online transfers of funds without the typical constraints and fees that intermediaries like banks are infamous for. You can find online shops and service providers that allow payments in Bitcoin, so in a way, it is also impinging on systems like Paypal and Visa. But it is more than this.
The value of a Bitcoin is not static or pegged, but rather, fluctuates on the whims of those looking to acquire the currency to complete their online purchases. To attain Bitcoin, one would typically engage in a somewhat sketchy bank transfer in which their fiat currency is exchanged at the current rate for Bitcoin that would be deposited in their virtual wallet. As mentioned above, you can also mine for bitcoins in a variety of different ways with different programs that goes far beyond the scope of this post. You would then go ahead and purchase whatever you were looking to purchase in the first place.
As popularity increased, Bitcoin moved beyond a simple system of payment and transferring. As their value started increasing, individuals began recognizing the currency as an opportunity for an a-typical, high risk component of their investment portfolio. Bitcoin began to be used less (at least popularly) for paying people and more for investing and saving. Trading platforms emerged and eventually Bitcoin became popular enough to be blasted across standard platforms and media channels. This brings us to the huge spike in price of a single Bitcoin to well over $200. Early investors had become millionaires as proudly exclaimed on Reddit, and the public entered a classic bubble fever around this new investment. Perhaps quicker than anticipated, that bubble popped.
It has certainly been an exciting ride over the past few months, especially now that the Bitcoin has the attention of bankers, financiers, and high-profile investors. While the team at commandN isn’t financially invested in the Bitcoin, it is fascinating to watch the growth of an alternative currency. We will definitely be following the story to gauge impacts on traditional mediums of payment and investment. What is your take on Bitcoin?