A form of virtual currency called Bitcoin has been making headlines worldwide. Launched five years ago, Bitcoin became the world's first decentralised payment network. Instead of being controlled by a central banking authority, the security of Bitcoin is maintained through a secure computer algorithm.
The Bitcoin system was created by Satoshi Nakamoto, a programmer whose real identity has never been revealed. Bitcoin initially attracted internet enthusiasts, but has since experienced more widespread appeal. The current market economy of Bitcoin is estimated to be over $1 billion.
- This video by journalist Duncan Elms describes the function of Bitcoin:
- Nakamoto released a paper in 2008 detailing the purpose of Bitcoin. For Nakamoto, the current financial system "suffers from inherent weaknesses of the trust based mode". According to the paper, the qualities that differentiate Bitcoin from other currencies is its practicality. Online transactions require a trusted third-party to track a holders' balances and information. Bitcoin, however, is a peer-to-peer electronic money that allows transactions without third-party intermediaries.
- Below are examples of peer-to-peer money transfer:
- Many online are welcoming the growing digital cash system:
- Reddit user sojalemmi comments on the practicality of Bitcoin:
- Below is an image of anonymous transactions displayed in the block chain:
- Governments are also taking notice of virtual currencies and some are warning against their legitimacy. Last month, China restricted its banks from accepting Bitcoin as currency. Following China's ruling, the European Union's banking authority also warned against virtual currency that lacks any government protection.
- The idea of regulating Bitcoin has triggered mixed reactions online. Some argue that laws regulating digital currency adds credibility, while others say government interference defeats the purpose of a decentralised payment system.
- Reddit user Panzerdrek argues that a lack of understanding in the functionality of Bitcoin can create a bubble:
- I think the real argument is that large numbers of people are investing in Bitcoin without any real understanding of its utility, which may mean that market pricing is detached from the real value of the currency. In that way, it could be like a bubble. That is generally how bubbles are created. People invest in things simply because they believe they will go up in value, and may even have some generalized sense of why the thing is valuable, but they have no ability to fairly measure the present utility of the good in relationship to its market price.