Bitcoin, and other so-called cryptocurrency has been the subject of much recent news—largely due to the dramatic, and some would argue, unsustainable increase in price. Although this new form of currency has many investors and speculators excited, savvy business owners should be wary.
Many of you reading this are probably asking yourselves a similar question: what is Bitcoin? Bitcoin is what is known as cryptocurrency. The concept is a relatively simple one, but the practical implementation is anything but. Essentially, the idea behind cryptocurrency is that it provides an anonymous method of payment for digital transactions. This system relies on an algorithm, SHA-256, to generate a hash. Computers generate Bitcoin, a process called mining, by performing millions of calculations with this algorithm. In the early days of Bitcoin, it was relatively simple to generate, but as usage has expanded, scarcity is built into the system as the algorithmic calculations used to generate Bitcoins become increasing complex. Bitcoins are stored in a wallet—an application that allows users to authenticate into their account and utilize their acquired or mined Bitcoins to make anonymous purchases online.
The anonymity built into Bitcoin was the chief aspect of the cryptocurrency that has many regulators, and members of law enforcement worried. By allowing online transactions to be entirely anonymous, this line of reasoning holds, facilitates illegal activity. Although this may be an unpreventable consequence of Bitcoin, its proponents argue that this is merely a byproduct of cryptocurrency, much the same way that physical currency can be used for illegal activity.
Recently however, new concerns have risen concerning cryptocurrency, and Bitcoin specifically—runaway speculation. The value of Bitcoin has risen tremendously in its short history. In July of 2010, one Bitcoin was worth approximately $0.08. On December 15th, 2017, one Bitcoin was worth $17,500. As of this article’s writing, the value has fallen precipitously, to approximately $10,000. This seemingly runaway speculation has many of the hallmarks of the DotCom Bubble of the 1990s.
If you are interested in learning more about Bitcoin, the potential for investment, and what can be purchased with cryptocurrency—it is exceedingly important to be informed. Bitcoin and other cryptocurrency is still in its infancy; the savvy business owner would do well to make an informed, and cautious decision about whether to begin investing in or accepting Bitcoin.