While Bitcoin has been around since 2008, there is still so little we as a society understand about its value, its function, and its place in the economy. And the reason for our lack of understanding is primarily due to our inability to progress from our formal understanding of how currency works and what gives it value.
See, even though a large percentage of the population couldn’t tell you much about how the World Bank operates or what factors dictate the fluctuation or value of currency, we vaguely understand that there is an agreed-upon basis from which the value of money is derived from. It’s kind of like God –people can’t see him or understand how he operates, but they blindly have faith that he knows what he’s doing so we don’t ask questions. That’s kind of our stance on money.
Which is why it’s particularly confusing (and even suspicious) to the average person when we hear about a form of currency that you can’t see, that is not regulated by the government or any professional organization, and operates under the radar as a cryptocurrency within the electronic world.
In actuality, it is the epitome of how a free market works –the value of each bitcoin is determined by supply and demand, so the monetary value of the bitcoin is at the mercy of peer-to-peer trade and not a third-party organization like banks. However, the inner workings of cryptocurrency (whether you are talking about bitcoin or cousins of it like Ethereum) is rather confusing, so I tried to make a very complicated concept as easy as possible. In all honesty, I’m not even sure I have a handle on it, so it’s like the blonde leading the blind but we’ll give this a shot.
What is Bitcoin?
Other than a term computer geeks love to throw into the conversation to make you feel dumb or inferior, bitcoins are electronic currency, otherwise known as ‘cryptocurrency’. Bitcoins are a form of digital public money that is created by painstaking mathematical computations and policed by millions of computer users called ‘miners’, who subsequently gave up on ever getting laid years ago.
In essence, bitcoins are electricity converted into long strings of code that have monetary value.
How Bitcoins Work
Bitcoins are virtual coins designed to be ‘self-contained’ for their value, with no need for banks to move and store the money. This is actually a huge upside because it means there are no institutions that can steal your money or cause a market crash; its self-regulated by the users.
Once you own bitcoins, they behave like physical gold coins: they possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to
purchase goods and services online, or you can save them in hopes that their value increases over the years.
Bitcoins are traded from one personal ‘wallet’ to another.
A wallet is a database that you store on your electronic device or somewhere in the cloud.
Bitcoins are forgery-resistant. It is so computationally-intensive to create a bitcoin, it isn’t financially worth it for counterfeiters to manipulate the system. So if you’re planning on mining for cryptocurrency, you may want to do some stretches and have a Gatorade on hand, cuz shits about to get real.
Why Do Banks Have a Problem with Cryptocurrency?
Because –duh –the electronic world of money is obviously a huge threat to the old, paper money system and apparently banks want to be the only ones who can totally screw people over for millions and put the country into financial distress.
It is an adage in the banking industry, “know thy client.” Bitcoin makes that impossible.
Last week, JP Morgan CEO James Dimon claimed it a “fraud,” saying it’s “just not a real thing,” and that “eventually it will be closed.” And to be honest, he’s probably right because, right now, the money exchange system leaves no paper trails so there is no way for the IRS or Federal Bank to track exchanges. Thus, bitcoin and Ethereum aren’t regulated by the government. It is important to note, however, that banks like Wells Fargo have been caught multiple times creating fake accounts to steal millions from their customers, so it’s a little difficult to take anything this guy says at face value.
Where Does It Stand Now?
As of now, cryptocurrency is still on the rise with more and more people investing in the shaky and volatile market. Many places around the world including hotels, super markets, ATMs, and train stations accept bitcoin, so I don’t see it leaving any time soon. Part of the problem is we’re embarking in an age that the government and financial regulatory organizations weren’t prepared for. Thus, unntil they catch up with the technology and find a way to regulate or contain the system, it’s a free for all and everyone’s laughing to the bank.