We’ve all heard of it and know that its got something to do with computers and money – aside from that all the explanations seem like double Dutch but Bitcoin, like many things isn’t as complicated as it sounds. Bitcoin was created in 2009 by a man named Satoshi Nakamoto which may – or may not be a pseudonym. Bitcoin, as the name suggests, is a form of currency that is used entirely within the digital real. There are no official physical bitcoins, nor is there a central bank (such as the Bank of England) to monitor the currency. It has been decided that there are to be a finite number of Bitcoins – 21 million to be precise that theoretically will continue to be released until the next century.
Bitcoins are, in a way, comparable to gold rather than to traditional currency because of the way they are created or ‘mined’ in the digital aether. Computer servers mine bitcoins by solving complex algorithms comparable to the way that a miner might chip away for months in a cave before finding a precious metal or stone. Like gold, diamonds and other precious commodities there can only be so many of them – unlike contemporary currencies that can governments can create more of.
Bitcoins are technically worthless as a commodity – they do not physically exist, they are not accepted as legal tender by the majority of the world’s retailers and they have fluctuated wildly in value since the inception of the payment network. A common utility of the coins has been the underhand use of them on sites like Silk Road in order to purchase illegal narcotics and other untoward items.
It’s usefulness in paying for commodities anonymously has been secondary to how it has been used as an investment by those who feel that they somehow hold an intrinsic value. Bitcoin’s rise has been compared to the tulip mania of the 17th century where, in Holland, the bulbs of tulips sold for preposterous prices until the bubble finally burst. Perhaps the only difference is that the bulbs did physically exist and would (with due care and attention) produce a beautiful flower – whereas the Bitcoins very existence is a hypothetical. The idea of a cryptocurrency is an exciting one for the digital age though Bitcoin has a way to go until it cultivates the attention of those involved in serious economics and finance.