No end in sight for meteoric bitcoin rise
Could bitcoin replace traditional currency? The cryptocurrency’s value has doubled in a fortnight. One bitcoin is now worth over $15,000. But some believe the revolution has only just begun.
Having begun the year with a value of under $1,000, one bitcoin is now worth over $15,000. Its rise threatens to overturn all the rules of economics. What on earth is going on?
Created in 2008 by an unknown person using the pseudonym Satoshi Nakamoto, bitcoin is a digital currency which is stored electronically. Unlike conventional currencies issued by central banks, bitcoin is "mined" by computers using complex algorithms.
So what would happen if bitcoin replaced traditional currency?
There would be some advantages. Cryptocurrencies’ value cannot be manipulated as easily as fiat currency (which a government has declared to be legal tender, but is not backed by a physical commodity like gold).
But it could be a disaster for the unprepared. As cash loses its value, established institutions might not be able to pivot to the new status quo in time.
Governments will be hit hard, as they will no longer exercise the same level of financial control.
The idea of printing more money is always raised in response to financial problems, but that option would disappear as the number of bitcoins in existence is limited to 21 million.
Could this really happen?
No way, according to legendary investor Jack Bogle. He says: ”There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it”. Security is another problem. Bitcoin exchanges are frequently hacked. When was the last time you heard of a gold depository being robbed?
But Jim Reid, Deutsche Bank’s lead strategist, believes fiat currency may be doomed, and that bitcoin may replace it. “It‘s possible that inflation means people lose faith in paper money,” he has said, adding that bitcoin’s “open structure and decentralised system” are an advantage in the modern era.
- Will bitcoin take over the world?
- Look at the graph above. Imagine that, in January you had purchased 7 bitcoins. How much would your purchase be worth on December 7th, and what is the increase as a percentage?
Some People Say...
“Cryptocurrency is such a powerful concept that it can almost overturn governments”Charles Lee, founder of Litecoin.
What do you think?
Q & A
- What do we know?
- We know that the price of bitcoin, a cryptocurrency that was created in 2009, has skyrocketed in 2017. At the start of the year, one bitcoin was worth $997. Two weeks ago it was worth over $8,000, and now it is worth over $15,000.
- What do we not know?
- Experts are split on whether the next step is merely a “correction”, or whether bitcoin truly is a bubble that is about to burst.
- Satoshi Nakamoto
- He was claiming to be a man born in Japan in 1975. Nakamoto has used a German IP address; he appears to work east-coast American hours and uses British English spelling.
- Central banks
- Institutions with functions usually established by national law to manage monetary policy, issue bank notes and cash, and regulate commercial banks, such as the Bank of England and the US Federal Reserve.
- Only this week it was reported that nearly $64 million in bitcoin was stolen by hackers who broke into a Slovenian-based bitcoin mining marketplace.