It’s almost impossible nowadays to open a newspaper or spend any significant time online without stumbling onto an article or blog about the latest trend in finance—Bitcoin. You’ll find as many opinions on the latest trend as you’ll find articles. James Dimon, the CEO of J.P. Morgan, stated that he believes no matter how high the currency trades for, that it will eventually be worthless. There are many others who believe it may be the currency of the future.
The concept of Bitcoin can be a tough one to grasp because there is almost nothing to compare it to. The “blockchain” technology that the currency uses, as well as the way that the currency is earned and exchanged, are both completely new.
So what exactly is a Bitcoin? A Bitcoin is a form of money that exists only online. It is not issued or backed by any national government, and it is not recognized by most brick-and-mortar stores. At its core, Bitcoin is a set of software protocols for generating digital tokens and for tracking transactions in a way that makes it hard to counterfeit or re-use those tokens. A Bitcoin has value only to the extent that its users agree that it does.
Bitcoin can be exchanged online using blockchain technology. This technology makes the cryptocurrency unique. Users can hold Bitcoin online in virtual wallets and transfer Bitcoin to other parties that accept the currency. The transaction is completed when “miners”, with the help of supercomputers, crack each Bitcoin’s digital code—similar to solving a puzzle. The miner is then rewarded with a fraction of a new Bitcoin for the service. With each transaction, each individual Bitcoin code gets longer and tougher to crack and therefore less vulnerable to theft.
The currency is subject to extreme price fluctuations and is traded 24/7. I am writing this article on 12/18/2017 and the price of 1 Bitcoin is currently valued at $19,052.72. Just for fun, search “Bitcoin price” and see how much the price has changed in just weeks!
At its best, Bitcoin has the potential to become a widely accepted alternative to the dollar and other world currencies. Before this can happen however, there needs to be price stability. If the currency can gain stability and becomes more widely accepted, then the hype and speculation become a bit more warranted. The concern is the alternative. If the price never stabilizes and Bitcoin does not gain acceptance on a larger scale, then it is possible to see a scenario where the currency is eventually considered worthless. While we believe that there will likely be a role for a cryptocurrency in the future, Bitcoin today is speculative at best.