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Is Bitcoin the Currency of the Future?

Bitcoin, the Independent Currency

Image from Bitcoin.

Bitcoin is a decentralized currency invented by a developer that goes by the name of Satoshi Nakamoto. Unlike most major currencies, there is no governing body, such as the federal reserve, that controls the supply of the Bitcoins. One of Bitcoins greatest strengths is that it is not backed by any modern government. In other words, global financial crisis will not affect the value of the coin as strongly as they affect the value of other more conventional currencies. In fact, crises usually help to boost the value of the coin. Cyprus’s recent financial struggles have driven Bitcoin to an all-time high value of $234. Citizens of Cyprus have began dumping their Euros for Bitcoins after the plan to tax bank deposits with a value of over €100,000 at rates between 40 and 80 percent was announced. Bitcoins have become so popular that entrepreneurs like Jeff Berwick are looking to start installing the first Bitcoin ATMs. They would work by converting Bitcoins in your Bitcoin wallet to cash that can be withdrawn.

Bitcoin Mining

bitcoin miner image
Image from @BitcoinMiner

 

Bitcoins are created when users solve algorithms which unlock blocks of Bitcoins. The algorithms become increasingly more difficult to solve as more and more Bitcoins are created. In order to mine Bitcoins, extremely fast computers are necessary. “…the current difficulty factor is 567385. So, if your CPU could perform at a rate of 4,000,000 hashes per second, it would take you over 19 years to solve a block, not factoring in the eventual rise of the difficulty.” One of the greatest difficulties with Bitcoin mining is obtaining the processing power necessary to solve the algorithms in an economical manner. However, as the cost of Bitcoins continues to rise, more and more people will be able to solve the algorithms while making a profit

Although the supply of Bitcoins is reliant upon determined users who unlock the coins, the supply of Bitcoins is capped at 21 million coins. Since there is a finite amount of Bitcoins, the value will continue to increase as the supply of Bitcoins gets closer and closer to that level. Bitcoin shares similar attributes to gold. Not only is there a limited supply, but economic uncertainties help increase the value of the coin. Those are some of the factors that makes Bitcoins attractive to investors.

Bitcoin Drawbacks

Bitcoin is affected by a unique set of problems that other currencies do not encounter. Hackers have recently launched a DDOS attack on MtGox servers which are responsible for the exchange of Bitcoins, causing the servers to temporarily malfunction. The malfunction has caused Bitcoin to drop to about $120 from $142.  A major criticism of Bitcoin is that the currency is too susceptible to attacks from outside sources. The hackers that attacked Bitcoin servers did so they can make money by selling the currency when it is expensive. They then cause the value to deflate when they attack the servers and then they buy again. This is a problem that is unique to Bitcoins. Other currencies are supported by a central bank that controls the money supply. Since Bitcoin has no authority regulating it, it will continue to be susceptible to DDOS attacks. There is no safety net to protect Bitcoin users which makes buying it risky.

Another concern users have with Bitcoins is their lack of applicable uses. There are very few websites that accept payments in Bitcoins. This is in part due to the fluctuation of the currency. However, as the price of Bitcoins stabilizes, an increasing number of retailers will adopt the currency. Also, as Bitcoin ATMs become commonplace, consumers will have a convenient method for exchanging their Bitcoins for cash. That will enable them to immediately use Bitcoins for everyday purchases. ATMs will make Bitcoins a more user friendly currency which will help increase the currency’s popularity.

Bitcoin’s Recent Drop in price

Bitcoin has sunk in value recently from $234 to $93. This is due to special circumstances that Bitcoin is susceptible to. For example, trading of Bitcoins was halted from April 11 to 12th because Bitcoin servers could not handle the high volume of transactions. Another reason for its drop in price is that global governments have shown signs of their desire to try to regulate the currency. Bitcoins have been used to purchase illegal narcotics and evade taxes which explains why some governments would want to regulate it. Bitcoin’s value was superficially high following the panic Cyrus caused. Bitcoin’s current price, at $93, is more reflective of Bitcoins actual value and so the price is likely to stabilize in the future. Although Bitcoin’s price has fluctuated greatly in the past few weeks, it is still a promising currency with many strengths.

Bitcoins offer users an enticing opportunity to invest in something that will not be affected by the success and failure of societies around the world. It is completely controlled by its users which has advantages and draw backs. I believe that is a solid currency, despite its inconsistencies and recent price drop, and will appreciate in value in the future.

For current Bitcoin prices and charts, please go to https://coinbase.com/charts

Would you buy bitcoins? What are your concerns with the currency? Do you think that Bitcoins will continue to grow in popularity? Share your thoughts with us by commenting below.

Justin Hilgart

I am a technology enthusiast with a passion for writing. I love Syracuse and I am in the class of 2016. I enjoy singing, reading, and hanging out with friends. When I graduate from Syracuse I hope to spend some time abroad before settling down in the states.

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  • Mark

    “Hackers have recently launched a DDOS attack on Bitcoin servers”
    Nope – they attacked mt.gox – a bitcoin exchange.

    One fact is wrong so you may as well have just made up everything you wrote.

    Maybe you made it all up? Who knows?

    Why should we trust you if you are willing to lie/guess/fabricate?

  • Justin

    Mark,

    Hackers attacked MTGox servers which are responsible for the trading of Bitcoins. That is what I was referring to when I said that they attacked Bitcoin servers. I have changed that sentence in the original article to make that more clear. Thank you for bringing this to my attention.

  • Pingback: Is Mining Bitcoins on the Amazon Cloud the Road to Riches? | Dr John's Tech Talk()

  • bahrta

    The problem with bitcoin is it doesn’t need a global financial crisis to fluctuate. It does that all on it’s own. I have seen it fluctuate $10 in 6hrs, mostly down.

  • Joe

    Great to see an open dialog about bitcoin as it definitely deserves more attention. As a lover of freedom, I personally believe that the benefits of a decentralized currency like bitcoin significantly outweigh the downsides. Bitcoin takes massive power and influence away from bloated governments and big banks and returns it to the people in the form of frictionless payments to one another. Who would be against governments no longer being able to print money at will to fund trillion dollar wars and bailouts? Additionally, bitcoin technology is providing a revolutionary (and simple) way for the “un banked” millions across developing countries to finally exchange money with one another. With bitcoin, if they have a smartphone and a bitcoin app, they can pay each other for goods and services as well as send money back home to loved ones, all without massive, abusive fees with ancient systems such as Western Union and the like.

    I’m encouraged to see more people talking about bitcoin and I encourage you to consider some of the benefits I’ve mentioned.

    All the best,

    Joe