Bitcoin is a virtual currency, say a computer code that people attach a specific value to. Unlike euros, dollars or any other classic currency, there is no physical bitcoin that you can put in your wallet.
Bitcoin was invented in 2008 by one Satoshi Nakamoto, a programmer or group of programmers whose true identity we do not know until today. In 2008 he wrote a white paper in which he explained all the basics of bitcoin. The first actual bitcoin transaction took place a year later. Then, according to tradition, 10,000 bitcoins were placed on the table for a pizza.
Unlike classic coins, bitcoin is not issued by one central bank. The currency is created by having users decipher complex computer codes on a decentralized system to which everyone is connected: the blockchain. Developing bitcoins is called “mining” in the jargon.
Origin and purpose of bitcoins
But what makes bitcoins interesting is the operational protocol, i.e. the rules that apply to the registration of transactions, their validation and the creation of new money. Engineers initially designed the active protocol for bitcoins as an alternative to the regular payment system.
The shaping of the bitcoin protocol resulted from libertarian-anarchist ideas and was partly determined by the crisis of confidence that resulted from the Great Financial Crisis. For this reason, the bitcoin protocol makes payments less susceptible to government control and less vulnerable to abuse by central banks.
Current discussion points: speculation, crime and regulation
A common question about bitcoins is whether they are a bubble. In any case, it is not something for the faint of heart:
Shortly after the introduction of bitcoin in 2009, its price fluctuated sharply. But it was not until 2017, when the price of bitcoin increased more than tenfold to more than 10,000 euros per bitcoin external link, that the payment method made the news. Supervisory authorities and central banks (e.g. the Dutch Authority for the Financial Markets, the European Central Bank and the Chinese central bank) have long warned against bitcoins for speculative purposes. In their research into bitcoin transaction patterns, Glaser and his colleagues showed that bitcoins were mainly used for speculative purposes and not as a method of payment. These warnings were recently echoed by Nobel laureate Robert Shiller, who called bitcoin "an attractive story" whose price will undoubtedly fall. The upcoming European regulation of cryptocurrencies and their ecosystem is likely to harm the price of bitcoin.
Of the many new possibilities that Bitcoin offers, the most talked about is that anyone can create an account at minimal cost and without prior authentication external link. Another Nobel laureate, Joseph Stiglitz, recently criticized bitcoin’s external link, which he says is mainly used by criminals to launder money and conduct cross-border transactions.
Last year’s research was conducted by Dr. Hanna Deleanu and Professor Susan Rose-Ackerman; it appears that bitcoin exchange platforms often fail to identify their customers correctly. This leaves room for abuse by dubious customers.
Intended initially as security against the concentration of power, the anonymous nature of bitcoins has posed significant problems for regulators and financial firms alike. Regulating companies that do business with bitcoins to prevent them from being used to launder money is tricky. But failure to control can put traditional financial institutions at a disadvantage and possibly even endanger the entire financial system.
On the other hand, applying traditional anti-money laundering regulations would only drive criminal businesses underground and increase costs for legitimate businesses. So is this a ‘lose-lose situation?
Precisely because the old regulations are no longer usable, regulators, policymakers, and researchers can join forces external links to design a new generation of rules. One that is more effective, less expensive and more inclusive.
After a price climb of no less than 1,000 percent since the New Year, you can only conclude that a real hype is going on around bitcoin. When bitcoin hit the $10,000 mark, the coin’s total market value was higher than US-based IBM, an IT company.
One hundred six years where more than 386,000 people work worldwide.
Meanwhile, the future of bitcoin remains highly uncertain. Although it all started with that one pizza transaction, bitcoin is still far from a widely accepted means of payment. The blockchain technology on which the virtual currency runs is still unable to process many transactions in a short time. As a result, it can sometimes take minutes before a simple bitcoin transaction – such as buying a coffee – is completed. The fact that the price goes up 10 percent one day and can plummet by 10 percent the next day does not make bitcoin particularly attractive as a means of payment.