You can walk into a Subway in Allentown, Pennsylvania and pay for your $5 foot-long with bitcoins. In fact, around the world, this digital form of currency is popping up more and more in our retail establishments.
The world’s most popular form of digital currency was created by an anonymous computer programmer (or perhaps a group of programmers) under the pseudonym Satoshi Nakamoto just over four years ago. We really know nothing about Bitcoin’s creator, and we can only assume that the creator is Japanese. The first big Bitcoin exchange just so happens to be operated out of Tokyo.
The open source software platform was released onto the Internet, and Bitcoin snowballed from there. Today, it is moving to become a mainstream form of currency; surely, some of you out there are using it.
As more and more people jump on board, the system has expanded to an abundance of online machines. And while many people believe in Bitcoin, they’re not spending the currency because its value continues to go through the roof.
If we look at the Tokyo-based Mt. Gox exchange, the value of Bitcoin in just a month has gone from $160 to more than $700, according to Wired. And it’s not stopping there.
But this has some people worried. If we’re going to be hoarding our bitcoins, where does that leave the future of the currency?
Many have gotten behind Bitcoin because they believe it has the power to free the world from currency manipulation and take the power back from governments and big banks, essentially restructuring the worldwide economy.
Those same believers would say that the instability in pricing is just one of the necessary growing pains of a new form of currency.
Digital Currency Competition
In many economists’ eyes, these ups and downs are to be expected as Bitcoin takes on the mainstream market.
The way things stand now, goods and services like that $5 foot-long are still priced in currencies like the almighty dollar. The Subway in Allentown simply converts federal currency into digital money.
But because the Bitcoin system has proven to work, other forms of virtual currency are sprouting up – like Litecoin, PeerCoin, and anoncoin – all claiming to hold advantages over Bitcoin.
The Litecoin is probably the second most popular of the digital currencies, with a total value of $250 million as of last week, according to the New York Times. And unlike Bitcoin, we at least know where it comes from.
It was created by Charles Lee, a 36-year-old former programmer from Google (NASDAQ: GOOG) who lives in Silicon Valley and who created his currency late in his free time in the evenings.
These virtual currencies have become big business, often becoming worth millions of dollars in a matter of months. According to the New York Times, on the popular Cryptsy exchange, 60 different coins can now be traded.
The reason there are so many is to offer choices to the consumer, same as with any other product. Charles Lee and his Litecoin didn’t set out to take away from Bitcoin, but rather to supplement it – as he described it to the New York Times, the “silver to bitcoin’s gold.”
The problem with these new digital currencies is that they also open the door to fraud and illegal activities. It’s hard to regulate something that is so chaotic. And with a lack of regulation, pump-and-dump schemes have become common.
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Bitcoin Heats Up
Of all the digital currencies out there today, Bitcoin reigns supreme, leaving all the others in its dust. The rest are merely imitators, and while a few, like Litecoin, have cracked the $100 million mark, the total value of Bitcoin is in the billions.
Bitcoin has what the rest are trying to achieve: an open-source computer code with no central authority and no bank to fall back on.
The other currencies are only successful because of the success Bitcoin has seen. At one point, the value of Bitcoin rose to more than $900. It currently sits in the mid-$800s on the Mt. Gox exchange. Since the beginning of the year, it is up around 6,000 percent.
Some view Bitcoin as a deflationary currency, but others given that same title have flourished in the past.
As it balances itself out, the only other real problem Bitcoin faces right now is its close tie to Silk Road – the online black market whose founder is currently being held in FBI custody on charges of murder-for-hire, narcotics trafficking, and computer hacking.
Lately, allegations have been arising that the mysterious Satoshi Nakamoto and Silk Road founder Dread Pirate Roberts could possibly be close colleagues – or even the same person.
Silk Road has been shut down, but it dealt strictly in bitcoins, which are difficult to trace to any one source or person.
Bitcoins are looking like a great investment. There appears to be no end to the rise in price, and popularity is only continuing to grow.
And unlike paper currency, which central banks like the Fed can decide to print, Bitcoin’s amount is limited. There are only 21 million out there to be mined, and this limit should be reached by about 2140. This makes it very difficult to manipulate.
Experts would argue several ways around that. The system can always be manipulated and changed to accommodate any foreseeable problems in a supply shortage. But even if this happened, it would be much more difficult than with fiat currency.
The major takeaway here is that Bitcoin provides an alternative that puts the power back in the hands of the people. There’s no guy behind a curtain pulling the strings, and no government or bank to answer to.
It’s more than just currency; it’s our basic liberties in motion. It’s up to us what we do with it.
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