A lot of people are looking for that next big investment that will make them millions. Well, a headline about Bitcoins caught my attention the other day: If You Invested $100 in Bitcoin in 2010, You’d Be Worth $72 Million Now. That’s a 720,000% return on investment.
What is Bitcoin?
Launched in 2009, Bitcoin is a form of digital currency, also known as a cryptocurrency. A cryptocurrency is a form of currency that relies on cryptography, which is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it.
Since its inception over seven years ago, the value of Bitcoins has skyrocketed. Take the Bitcoin Pizza Day, marked as May 22, 2010, for example. A Florida programmer indirectly bought two pizzas from Papa John’s using 10,000 Bitcoins. At the time, he would have paid roughly $30 for the two pizzas. If he paid the same number of Bitcoin today, those pizzas would cost roughly $23 million. In 2009, 1 Bitcoin was worth roughly .003 cents compared to $2,300 at its high in May.
Controversy Surrounding Bitcoins
So, why has the value of Bitcoins gone up so much? In Japan, Bitcoins are now accepted as legal currency. Furthermore, and here is where the controversy comes into play, Bitcoin is the currency of choice for most cyber criminals.
If you are familiar with ransomware Bitcoin won’t be a new topic for you. Here’s how it works:
But, why do cyber criminals prefer Bitcoin to regular currency? Well, Bitcoins don’t have a central bank. Rather, Bitcoin relies on users’ distributed computer power to ensure the feasibility of transactions. Basically, there are users who run software that keeps track of transactions and earn revenue, in the form of Bitcoin, in exchange for keeping track of a Bitcoin ledger. Furthermore, as we’ve said before, Bitcoin relies on cryptography. Meaning, it’s extremely difficult for anyone to track the movement of the currency.
With that being said, the transactions kept on a Bitcoin ledger work exactly like a bank account. Each Bitcoin account is assigned a number, just like your routing and account number with your bank. Each time a transaction is made to or from a Bitcoin account, it’s marked on the ledger. Cyber criminals, the ones who are smart anyway, are probably using several different accounts to minimize the chance of being caught.
While Bitcoin has been almost synonymous with cybercrime, the digital currency is gaining a foothold with investors.
“In Japan right now, because of some economic stagnation, there’s been an effort for investors to diversify their portfolios, and they’ve been encouraging people to diversify portfolios and invest in Bitcoin,” said Julian Gottlieb, an assistant professor of politics at the University of Oregon.
But because of the link between Bitcoins and cybercrime, people are wary of being involved with the currency. However, as the currency starts to spread in popularity, we wouldn’t be surprised to see it accepted in more and more countries.
My prediction: It won’t be long before we see Bitcoin or some other form of digital currency accepted at sites like Amazon.
Why? It’s currently estimated that there roughly 21 million Bitcoins in distribution. Once Bitcoin becomes more and more popular, the number of Bitcoins in distribution is going to increase significantly. However, this will deflate the price of the currency, leaving people with all these Bitcoins and nowhere to spend them. Sites like Amazon could give these individuals somewhere to spend their money.