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We look at what Bitcoin is, why it's inflating, and whether it's likely to become a common way for people to pay for stuff. The old saying applies: If it looks like a duck, walks like a duck, and quacks like a duck, it's probably a duck. Charting Bitcoin's price trajectory over the past year, it looks, walks, and quacks like a speculative bubble. Before getting caught up in the frenzy, it's worth looking at what exactly Bitcoins are.
Are Bitcoins useful for anything beyond financial speculation? Its promoters call Bitcoin an electronic currency — but are Bitcoins really suitable for everyday market transactions, like grocery shopping? Are they a good long-term store of value, a sensible choice of financial instrument for people who want to save for retirement, for example?
Nicholas Perrin is a strategist and systems designer on the leadership team at Holochain , a group of software experts designing a rival to the 'Blockchain' technology underlying Bitcoin. According to Perrin, the answer to these questions is: The market price of Bitcoin in dollars, over the past year, until mid October In the past several weeks, the price of Bitcoin has nearly doubled.
There's a speculative bubble on. Bitcoin is the best-known of dozens of cryptocurrencies that in recent years have been springing up like mushroom caps in a foggy autumn forest. Bitcoins are encrypted digital tokens, created gradually and decentrally by thousands of computers running complicated encryption programs that require enormous amounts of computer processing capacity and electricity.
The process of creating Bitcoins was deliberately designed to be difficult, expensive, and slow, so much so that it will take more than a century before the final Bitcoin has been generated, around the year In order to make Bitcoins scarce, and hence potentially valuable, the Bitcoin software system's designers have imposed a hard limit on the total number of Bitcoins that will ever be created: Conceptually, then, Bitcoins are analogous to gold coins.
Just as gold is a rare metal that must be obtained in difficult and expensive mining processes, the difficult and expensive computational process used for generating Bitcoin tokens is called 'Bitcoin mining. Bitcoin mining can be profitable for the miners, but requires significant investments. Some computer hardware makers have designed computers optimized for bitcoin mining computations, like this Swedish 'KnCMiner Neptune' computer.
The 'value' of Bitcoins is entirely driven by a narrative proposing that these limited-supply digital tokens can be used as 'money' because they can be traded between digital 'wallets' protected by very long numerical passwords. But since the value of Bitcoin is so volatile from moment to moment, Nicholas Perrin argues, Bitcoin isn't suitable for ordinary transactions. Would you buy a box of apples with a special currency you had bought hoping its value would soon double?
Or invest your retirement savings in a token whose value is vulnerable to wild swings in popularity and hence in price? The film "Tulip Fever" tells the story of a famous early financial bubble. The valuations of single tulip bulbs with unusual flower colorations were driven to insane heights in Holland before the tulip bubble popped in February Bitcoin transactions are recorded in a continuously updated, giant electronic database, or ledger, called the 'blockchain,' which records every transaction made, and never deletes any of the system's transaction history.
At any given time, many thousands of identical copies of the blockchain are distributed on internet-linked computers. The underlying software provides a means of ensuring all the copies of the blockchain remain identical. A key feature of the blockchain is that the Bitcoin transactions recorded on it are peer-to-peer, rather than mediated through a central authority like a bank.
If people are able to obtain Bitcoin wallets anonymously, this improves transaction privacy — but also the potential for illegal transactions.
Who designed the blockchain? The project appears to have been motivated by libertarian ideology. Anonymous software developers released Bitcoin and the underlying Blockchain system as Open-Source software in Bitcoin isn't the only digital token currency, and its underlying blockchain isn't the only one out there. A rival blockchain is Ethereum, which has its own currency, Ether. Ethereum features 'smart contract' functionality for online contractual agreements.
One of the biggest problems with the world's existing financial system is its failure to achieve 'financial inclusion' — i. According to a study from the World Bank, around 39 percent of the world's population, including two billion adults, are 'unbanked' — they don't even have a bank account.
Bitcoin doesn't help the poor, Perrin says, because both of the main ways to obtain bitcoins are unaffordable to the poor. One way is to buy bitcoins through online 'bitcoin exchanges,' using real money. Will Bitcoin continue to rise in perceived value? Will it cost more and more real money to buy a single Bitcoin in future? There's no reliable way to predict short-term Bitcoin price movements.
But there are reasons to suspect that in the long term, Bitcoin may lose most or all of its value. One reason is competition. There is a growing number of rival cryptocurrencies, some of which may be better-designed than Bitcoin. Is Bitcoin the new gold? Gold has been around for millennia.
Bitcoin is, at this stage, a fad — and better-designed cryptocurrency systems that are actually useful in day-to-day transactions like grocery shopping may soon displace it. Another risk to Bitcoin is regulation. Some countries have been trying to kill cryptocurrencies. Bitcoin takes flight again after overcoming roadblocks. Japan, by contrast, recently set up regulations for Bitcoin exchanges, which must apply for licenses to operate. The new rules have recognized Bitcoin as a payment system.
Nevertheless, the imprimatur of legality generated by Japan's regulation of Bitcoin appears to have caused many more people, especially in Japan, to view Bitcoin as a legitimate form of financial instrument, and to 'invest' in Bitcoins. This has arguably been a key factor in causing the recent rapid rise in Bitcoin's price.
But it doesn't really matter. You may never have used Bitcoin or other cryptocurrencies, but you're sure to have heard of the technology. Andrew Miller tells DW why they could spark a backlash against our surrendering of private data.
Has Bitcoin finally hit the ceiling many have predicted it would? But can the virtual currency sustain its record run amid increasing government regulation? He called the cryptocurrency a fraud and insisted it was destined to crumble like a house of cards one fine day. Shrugging off fears of a possible price crash, the cryptocurrency has reached another record high.
Despite climbing more than percent in a year, institutional investors remain skeptical about its prospects. Some of the world's biggest auto companies have teamed up with tech providers and startups to form a consortium aimed at developing automotive uses for blockchain, the database technology known from cryptocurrencies. Apple Inc supplier Foxconn has agreed to manufacture a blockchain phone from startup Sirin Labs.
The contract electronics maker's entry has heated up the race for a phone aimed at digital coin aficionados. The technology that made bitcoin possible could solve key challenges of a renewables-based energy system.
The race is on to radically change how to we consume and generate power. The three Spanish firefighters and two Danish men have been acquitted on charges of attempting to illegally bring migrants to Greece. They had been involved in rescue missions for refugees and migrants in the Aegean Sea.
At least two people have been killed and multiple passengers injured in a collision between a freight train and a passenger train in the southern German state of Bavaria. It's not yet clear what caused the crash. The latest crime statistics show Germany is one of the safest countries in the world but people say they feel less safe than ever. Interior Minister Horst Seehofer is to present the crime statistics for the first time.
Change it here DW. COM has chosen English as your language setting. COM in 30 languages. News German President Steinmeier notes 'substantial change' in trans-Atlantic ties What to expect from the Russian president's next term Business Deutsche Bank pilots 'disruptive' payments solution for airlines On Bitcoin and a public backlash 'to reclaim our privacy and security' You may never have used Bitcoin or other cryptocurrencies, but you're sure to have heard of the technology.
Bitcoin value falls dramatically in 48 hours Has Bitcoin finally hit the ceiling many have predicted it would? What is a blockchain?
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