The Rise and Fall of Bitcoin

Lauren Dibble, Staff Writer

Photo courtesy of Unsplash.com

Photo courtesy of Unsplash.com

Bitcoin investors are realizing that Sir Isaac Newton’s Law that states, “What goes up must come down,” applies to more than just gravity. In December 2017, the price of bitcoin neared $20,000, but the price has plummeted to $7,200 in just a couple of months.

Bitcoin is a new form of currency, known as cryptocurrency. It started in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made independently of a central bank.

The primary use of Bitcoin is to have the ability to make purchases of merchandise online anonymously. International payments are, by result, made cheaper because bitcoins are not tied to any country.

In recent years, people began trading Bitcoin in hopes of becoming rich. This recent trading caused the price of Bitcoins to go into the thousands in 2017, whereas the price in 2009 was just a few dollars.

In the past week, Bitcoin investors have shed roughly $67 billion in value. Since its peak in December, the value of bitcoin’s stake has fallen 63%.

Rory Cellan-Jones, technology correspondent at BBC, wrote, “What is clear is the whole cryptocurrency industry is now under the spotlight of regulators around the world. They are concerned not just about tax evasion but money laundering and major fraud.”

In order to acquire bitcoins, one can use traditional currencies such as dollars, but other digital currencies, like Litecoin, can also be used. Once users purchase bitcoins, they are stored in a “digital wallet” that exists either in the cloud or on a user’s computer.

According to Time, each user of the bitcoin system has a public-private encrypted key pair and use their public keys as their account number or address. Transactions are validated through a process called “mining” which is the method used to introduce new bitcoins into the system.

In order to mine bitcoins, users must have specific hardware designed to solve cryptographic mining puzzles. Once miners have the required software, they can join a mining pool that combines individual mining efforts from all over the world and concentrates that effort. If the pool solves the puzzle, each member of the pool receives an amount of bitcoin that corresponds to how much mining power they contributed.

Trading equities in this manner does raise the question of how much security it offers. In 2016, bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked.

Governments are concerned about taxation and their lack of control over the currency. Jones warns that “if you lose your money, you won't even be able to write it off against tax.”