Introduction: What Is Bitcoin?
Bitcoin is omnipresent in recent media. It is a term that has appeared in The New York Times on nearly a daily basis over the past few months.
What is it? And why are people so interested in it?
As to the first question, bitcoin is what is now known as a cyber-currency.
That is, it is a unit of monetary exchange that exists only in electronic form. There is no paper bitcoin. It does not represent a pile of gold behind lock and key at Fort Knox.
It is an independent financial system that allows users of the currency to buy and sell its units from an endless series of decentralized nodes across the internet.
How Does Bitcoin Work?
Bitcoin and other cyber-currencies work on what is known as blockchain technology.
A blockchain is, in essence, simply an electronic “ledger” that can exist in duplicate form in an unlimited number of locations simultaneously.
The primary feature of an item’s inclusion in a blockchain ledger is that, once in place, it is immutable. In other words, it cannot be changed or altered or re-valued.
Any review of that item in any of the duplicate copies of the electronic ledger will reveal the same information about that item.
Thus, cyber-currencies like Bitcoin (and it is by far not the only one) rely upon this blockchain technology. When the value of cyber-currency is reported by media outlets or by brokerages or other trading houses, that reporter is simply reading the electronic ledger.
Based on the market trading of Bitcoin on a given day, the same value is reported from any and all of the electronic ledgers tracking that value.
It is this technology which allows a cyber-currency to have value at all, free from the mediation of traditional, terrestrial financial institutions.
What Was Bitcoin Intended to Do?
Bitcoin was originally proposed in 2008 on anonymous internet message boards by a mysterious individual writing under the name of Satoshi Nakamoto.
Nakamoto envisioned a blockchain financial system with no trusted center point. It would be a system that could function without any overarching verifier of the data. The system would allow for financial transactions while protecting the privacy of those involved.
Money could be transferred anonymously, without reporting or regulation.
It was intended simply as a medium for electronic transactions.
What Is Bitcoin Now?
With that pseudo-utopian ideal in mind, how did Bitcoin end up as the darling of The New York Times?
Bitcoin has not been utilized so much as a substitute for the dollar or the Euro but as an object of speculation—and that speculation has driven its value to startling heights.
It has become commodified, in other words. As of this writing, the value of a single Bitcoin is over $46,000.
The gamification of retail investment channels, coupled with the recent $1.5 billion investment of Elon Musk and Tesla, has pushed Bitcoin value into the stratosphere.
That sort of value can’t help but attract public interest.
Where Will Bitcoin Go?
While notables such as [Bill Gates, Warren Buffet, and Janet Yellen remain dubious](https://www.bloomberg.com/tosv2.html?vid=&uuid=682c4030-8033-11eb-a3b5-9... ") about Bitcoin’s usefulness, Tesla will soon begin accepting Bitcoin in payment for its automobiles.
PayPal, Fidelity, Visa, and MasterCard are accepting Bitcoin as well. More will follow.
With well-publicized Bitcoin theft and password-loss incidents, regulators in the U.S. are now paying more attention to the evolution of cyber-currencies. As a result, many investors now view Bitcoin, specifically, as a legitimate component of a good investment portfolio.
It is likely that the various cyber-currencies will coalesce into a single, international coinbase system, but how quickly that occurs and with what cyber-currencies is yet to be determined. That may be in the hands of politicians at this juncture.
What is clear, however, is that Bitcoin’s use increasingly reflects the original intent of its inventors that it function as a vehicle for financial transaction. As our system is increasingly cashless, it is clear that public interest in and demand for cyber-currency is a genie that cannot be stuffed back into its bottle.
Bitcoin is here to stay – even if it remains the plaything of the super-rich and the speculative…
This article is the product of the recent interview of high-tech partner Andrew Updegrove of Gesmer Updegove with Justin Swanson of Bose McKinney & Evans LLP. You can view video clips from this interview on our Bite-Sized Business YouTube channel.