With the unyielding uncertainty about the stability of the national economy, some people are turning toward electronic currency as a viable replacement.
Money Morning, an investment news service, released a report earlier this year concerning the fear of the degrading value of paper currency, which many citizens and local governments share. Thirty-six cities across America have taken measures to rid themselves of the U.S. dollar. Analysts are questioning if currencies – such as Bitcoin – are the new way to think of money.
Bitcoin is a form of cryptocurrency, meaning it has no standard value and no physical form.
Hunter Thornsberry, a freshman in the College of Technology, has some experience with Bitcoin.
“I watched as the value of Bitcoin hit its all-time high one minute, and within three minutes it dropped to one-fourth that value,” Thornsberry said. “So where does this perceived value come from? It’s all speculation.”
Many users enjoy Bitcoin because it is transparent; it is a completely open source and every transaction is recorded. Users who take steps to protect their information find it also protects privacy well. The algorithms involved with Bitcoin are peer-reviewed and secure.
Users online mine Bitcoin, and this process, called hashing, involves computing a complex math equation. If a correct solution is obtained, the user is rewarded, and a new Bitcoin is found.
The issue with mining Bitcoins is that by the time a user receives the Bitcoin reward, they have spent more money on electricity running the computing equipment than what the reward is worth. To combat this, many users buy specialized equipment designed specifically for mining or work together in a pool. A pool shares the Bitcoin between the contributing members.
“This is a common issue, and it is why most Bitcoin miners have since left (for) other cryptocurrencies,” Thornsberry said.
There is no central server where Bitcoins are hosted. All information regarding transactions is synchronized between the virtual wallets of those who use the currency. To begin using Bitcoin, you would need to download a “wallet,” a piece of software that keeps track of your balance and transactions. Once you have obtained your wallet, you will receive an address. This address is what you use to receive transactions from other users. You will also be assigned a private key which, like a PIN, should never be shared with others.
Bitcoin supporters cite major advantages over traditional currency. These advantages include lack of organizational or governmental control, speed and privacy of transactions and the ability to make money using Bitcoin.
Because Bitcoin only has a perceived value, trading takes place on various markets. These markets are hosted online, allowing users to sell and purchase Bitcoin for traditional currency. Due to issues with these markets, the Bitcoin market is in a recession.
The largest Bitcoin market, MtGox, was recently shut down for still-uncertain reasons. Millions of dollars worth of Bitcoin were lost in total, and many users lost thousands of dollars worth of Bitcoin, or more.
Cody Harlow, an information science major at the University of North Carolina at Greensboro, said the MtGox incident exemplifies the instability of the market and for this reason, he won’t invest.
“It’s just like the stock market, and I don’t know anyone who would suggest storing your money in the Bitcoin market. Bitcoins are just too volatile,” Harlow said.
Another risk involved is the rapidly fluctuating value. Bitcoin crashes have occurred, dropping the U.S. dollar value by hundreds in a matter of hours. This has happened the other way too, making some users gain a large amount quickly.
In addition, there currently aren’t many retailers that accept Bitcoin as payment, although this is gradually changing. Overstock.com, for example, has announced it will accept Bitcoin payments. TigerDirect, a major technology retailer, has also began accepting Bitcoin. For many, though, Bitcoin remains more of an investment than a currency.
Bitcoin’s website warns against those who think it is a “get rich quick” opportunity. While Bitcoin is not a viable replacement for traditional currency, it is an emerging market that many are excited to be a part of. Bitcoin provides fast, safe and free transactions. However, it also has rapidly fluctuating value, limited retail use and issues regarding the Bitcoin markets. It is up to the individual users to determine whether or not Bitcoin is for them.