Bitcoin . . . Future Global Currency?

“Bitcoin Surges to Record Levels,” “Bitcoin More than Doubled This Year,” “Bitcoin Plummets, Loosing $4 Billion of Market Capitalization,” “Cyber Fraud Attackers Demand Payment in Bitcoin.”  These attention-grabbing headlines are typical of the recent media buzz related to this cyber-currency.  What is Bitcoin, and why has it garnered so much attention in the investment world?  Who will benefit?  Will this be trouble for the banks, Visa, Mastercard and Paypal?

Let’s start with some definitions, which we obtained from a white paper entitled “Bitcoin - A Primer for Policy Makers”, by Jerry Brito and Andrea Castillo of the Mercatus Center at George Mason University:

“Bitcoin is an open-source, peer-to-peer digital currency” that relies on “the world’s first completely decentralized digital-payments system.  Until Bitcoin’s invention in 2008 by the unidentified programmer known as Satoshi Nakamoto, online transactions always required a trusted third-party intermediary,” like Visa/MasterCard or PayPal.  Rather than relying on that third party, “every transaction that occurs in the Bitcoin economy is registered in a public, distributed ledger, which is called the block chain.  New transactions are checked against the block chain to ensure that the same Bitcoins haven’t been previously spent, thus eliminating the double-spending problem. The global peer-to-peer network, composed of thousands of users, takes the place of an intermediary.”  So, the term Bitcoin is used to refer to both the virtual currency as well as the decentralized payments network, and “the dollar value of a Bitcoin is determined on an open market, just as is the exchange rate between different world currencies.”

This new virtual currency has caught on: a $100 investment in Bitcoin in 2010 would now be worth over $75 million!

Full story at http://bit.ly/2sgzQ2e

 

 

 

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