Catching Up With Bitcoin Value: Where’s It Been? Where’s It Going?
If you are a late-comer to the world of Bitcoins, don’t be alarmed. There are many who don’t understand how or where this digital currency made its way into our vernacular or our economy. If you’ve been following Bitcoins for years and understand their history and the reasoning behind them, feel free to take a break. This is for the people who need to catch up on what Bitcoins are, how they came into being, why they are perceived as having value, how they are being used today, and their potential purpose in the future.
A Quick History of Bitcoins
Bitcoins have a relatively short history, being first introduced in 2009. They were created as a cryptocurrency, basically a digital asset that is controlled by cryptography. More simply put, Bitcoin is digital money that its users agree to trade for things or services of value.
Bitcoins are earned or traded between users over a block-chain ledger. Block-chain is a network of computers worldwide, where each user is identified by their own address or “wallet.” Unlike traditional “money”, there is no central bank. Instead, users with access to the block-chain ledger verify who has how many bitcoins so the validity of transactions can be determined.
Both block-chain technology and bitcoins were created by a person or persons who went by the pseudonym of Satoshi Nakamoto. Transactions take place as follows:
- A transaction is created.
- The transaction is broadcast to the peer-to-peer block-chain network.
- The transaction is validated and bitcoins are transferred to the verified “wallet”.
- The “ledger” maintains a record of the transaction.
Bitcoins and block-chain technology work hand in hand although there are those who are using block-chain technology in more diverse ways.
How do Bitcoins Have Value?
In the early days of money, coins had value because the metal content in them had value. Today, that is generally not the case. A dollar bill is valued at a dollar because we all agree it is worth a dollar. The same is true for those who use bitcoins. Bitcoins have value because those who exchange them believe they have value. To add to the perception of “value” the creator of bitcoin had decided to cap the production of the digital currency to 21 million bitcoins.
You may ask. “If Bitcoins exist only in the digital realm, how is it possible for them to have value or be exchanged?” It is important to note that worldwide, most financial transactions today are already essentially digital. If you are paid through direct deposit, pay bills online, and use a debit card for day to day expenses, you are already trading in the digital realm.
The Rise and Fall and Rise and Fall of Bitcoin
For the first couple of years bitcoins were “collectible” mainly by techies and had little to no value. In 2010, a year after first appearing on the scene, a Jacksonville, Florida pizza shop sold two pizzas for 10,000 bitcoins. In early 2011, the price reached $1 per bitcoin, and soared to $31 by mid-year. By the end of the year it fell back down to $2, In 2012, the value slowly rose, rebounding to $13 by the end of the year.
The year 2013 was a remarkable year for bitcoins as it soared to $266 by mid-April, dropped to $100 by June, and then peaked at $1,232 by the end of November. In 2014, the price bounced between $340 and $1,000 throughout the year.
By 2015, bitcoins value had settled in to the $200-$500 range, and took another leap in value to $500-$700 through much of 2016. But few were prepared for the coming explosion in the value of bitcoins in 2017.
In January of 2017, the value of a bitcoin reached over $1,100 and was just getting started. In May and June the price soared to $2,000 and $3,000 respectively. In August, Bitcoin reached a new peak at $4,600 and briefly reached $5,000 in September. As of the fourth quarter of 2017, the price remained at over $4,000.
Those two pizzas in Jacksonville would be worth about $40 million dollars in today’s value for bitcoins.
The Future of Bitcoin
Since 2013, Bitcoins have become increasingly accepted, helping to spur its growth and value. Today, many countries acknowledge it as currency and it is the most widely accepted crytocurrency on the planet. In the United States, the IRS refers to bitcoins as an intangible asset subject to taxation.
The cryptocurrency is not without its challenges. Because users store their bitcoins in “wallets” with pseudonyms, the precise identity of each is unknown. This makes bitcoins the perfect currency for nefarious activity, especially on the dark web. Another issue is that the value of bitcoins are extremely volatile and is constantly changing. This is challenging in a currency and even more risky as an investment.
The recent rises and falls in the value of bitcoins has people speculating once again whether bitcoins are the future of currency or a path to financial disaster. An article in USA Today noted two recent challenges to the future of Bitcoin. The first is that one of China’s largest Bitcoin exchanges is closing ahead of reports the country will order all of the cryptocurrency’s exchanges to cease operations. The second was a quote attributed to the CEO of JPMorgan Chase calling Bitcoin a “fraud” and stating that if any of his traders were found dealing in them they would be fired.
Never the less, the trading goes on and Bitcoin popularity continues to grow, especially in internet transactions. Keep in mind, this is a worldwide currency that has only been in existence for less than nine years, half of which it struggled in relative obscurity. If 2017 is any indication, the future of this particular cryptocurrency will be interesting to watch, even if from the sidelines.
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