The rise of Bitcoin is not happening without controversy. In recent times furious debates have erupted about its use, regulation and ethics. But, we shouldn’t lose track of the fact that this is still a new form of technology and many people are yet to fully form their opinion.
It pays, therefore, to take a step back and look at what Bitcoin and cryptocurrencies actually are, how and why they have emerged and then what lies at the heart of some of the issues making headlines today.
What is Bitcoin?
Bitcoin is a new form of currency that is purely digital. It’s not minted and printed like the money we carry in our pockets but is created and held electronically. It is the first and most famous form of ‘cryptocurrency’ and is created by computer software solving mathematical problems. Crucially, it is not directly controlled by anyone.
This currency was created by the secretive Satoshi Nakamoto and launched in 2009 in a bid to provide a secure way to store and pay money free from the control of governments and big banks, and without the fees charged by traditional institutions.
The ‘bitcoin protocol’ states that only 21 million bitcoins can ever be created by ‘miners’ – with about 16 million in ‘circulation’ – but these can be split into smaller parts. The money is bought and sold through ‘Bitcoin exchanges’ online.
Where is it used?
Bitcoin uses a public ledger called blockchain, a system which holds a decentralised record of all transactions, and is used to make payments online and even among some retailers.
It is also held by many people as a form of investment, with prices jumping from $13 or so when it was launched up to a peak of about $3,000 this year. With prices rising and falling for this new form of currency, many people choose to use a Bitcoin trading platform to take advantage of this volatility without having to own the currency for themselves.
Why are some people worried about Bitcoin?
Some of the worry surrounding this technology comes from people with a vested interest in the traditional use of currency who fear the disruptive power of cryptocurrency on the existing system.
Yet there are two fundamental issues that face Bitcoin as it grows which can, in general, be summed up as:
- Issues over regulation. While the ‘freedom’ is a selling point, it is also a concern for investors. What’s to stop the bottom falling out of the Bitcoin market entirely? How safe is Bitcoin in the long term compared to more established currencies? JP Morgan Chase CEO Jamie Dimon articulated this in a particular explosive series of comments – branding Bitcoin a ‘fraud’.
- Association with criminality. Anonymity – another selling point of Bitcoin – can also lead to issues. Bitcoin is being used by drug dealers and hackers in order to conduct payments in a way that cannot be tracked by the authorities. There’s a danger that Bitcoin could be tainted by criminality.
Bitcoin is the leading the market as the first and biggest cryptocurrency. It’s an innovation that appears to deliver a solution befitting the technology that we use in 2017 and has grown in use, interest and value in recent years. While traditionalists might be on the defensive as a result, critics do raise valid questions about the security of this form of currency – and its misuse by those with criminal intent.
Given the progress so far, you wouldn’t bet against Bitcoin continuing its growth – but the challenges need to be addressed if this is to happen.