Bitcoin has jumped 1900% in value this year. So, is the digital currency really the future of money or is it just a crypto-pyramid scheme?
One Bitcoin – $20,000.
How could a made-up digital currency have this value?
And when will the Bitcoin bubble burst?
Hi, I’m Leon Hawthorne. Bitcoin has become respectable… shaking off its image as the preferred currency of drug dealers and computer hackers.
Bitcoin has experienced a massive rise in value, as ordinary people join the gold rush, trying to make a quick buck out of the cryptocurrency.
In January 2017, one Bitcoin was worth $1,000. Today, it’s touching $20,000.
This level of price volatility lead some critics to conclude: Bitcoin has all the hallmarks of a dangerous pyramid scheme, whose price will crash as rapidly as it has risen.
So, what exactly is Bitcoin?
Imagine a ledger stored on a computer that says I have ten units of value. This is just a made-up number in a computer file. But if other people are willing to exchange goods and services for these units, then they function like money.
Bitcoin is one of hundreds of these digital currencies. It’s the biggest, then there’s Ethereum, Ripple, Litecoin and others.
The key thing is: unlike regular currencies, like the dollar, which is controlled by the Federal Reserve, Bitcoin is not controlled by any government or central bank.
People exchange Bitcoins in encrypted transactions between themselves without the need for an intermediary clearing house, so transaction costs are negligible and your Bitcoins cannot easily be seized by police. One reason the authorities dislike it.
There is a method of validating Bitcoin transactions and controlling the volume of the currency floating around. This is done in what’s called the blockchain, complex mathematical calculations using the shared computing power of millions of users.
The fear is whether Bitcoin could be manipulated by hackers, who steal your money or simply create more for themselves. But this is exactly what happens with so called real money.
Banks are robbed. Credit cards cloned. Personal accounts hacked. Worse still, the banking system on which modern society depends is a house of cards, prone to periodic crises that can topple the whole economy.
The Bank of England’s response to the 2008 banking crisis was to create – from thin air – 435 billion digital pounds to buy up government debt in a process known as quantitative easing. What’s the difference between that and what Bitcoin does?
Bitcoin was created the year quantitative easing began, 2009. The inventor, Satoshi Nakamoto, released it as open source computer software. His motivation was to liberate citizens from corrupt banks and incompetent regulators. The jury is still out on whether Bitcoin really does help or whether it creates a new layer of problems.
I’m Leon Hawthorne. Thanks for watching.