What’s bitcoin? - ‘Fiat’ money may be on the way out
cryp·to·cur·ren·cy /ˈkriptōˌkərənsē/ noun
a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Cryptocurrencies, like bitcoin, are gaining popularity. In fact, they’re so popular, they’ve already experienced their own bubble, seen it burst, and are now on the rebound.
If you missed the whole thing, don’t feel left out. Bitcoin and similar “altcoin” — including Ethereal, Ripple, and hundreds more — are a form of money that mostly technologically-savvy people are exploring.
And while the concept is easy to understand — cryptocurrencies are a form of money that exists in digital form only — the mechanics of how these currencies work are somewhat more difficult.
Bitcoin was invented in 2009 by an unknown person, or group of people, using the pseudonym Satoshi Nakamota. Other forms of altcoin followed.
University of Cambridge research found that, in 2017, there were between 2.9 million and 5.8 million users who had a cryptocurrency “wallet,” the technology that holds altcoin. Most of these users were working with bitcoin,
Here in Prescott, Dr. Jon Haass — Embry-Riddle Aeronautical University’s chair of the Department of Cyber Security and Intelligence — explained, “It’s de-centralized; you don’t rely on a single country for fiat currency,” that is, money that’s valuable because a government says it is.
Cryptocurrencies are not backed by any government, and banks don’t control cryptocurrencies. They aren’t regulated. That’s what makes cryptocurrencies attractive to some.
“Personally, I’d like to see the world’s central banking system disappear, and that’s one of the ways we could possibly get rid of it,” said Jeremy Houle at Prescott Computers.
Cryptocurrencies operate on what’s called the blockchain, which connects records, or blocks. Cryptocurrencies have strong encryption, so they’re tough to hack. The blockchain is a public-transaction database and acts as a transparent register of transactions.
Anonymity is one advantage to using altcoins.
“There are a great deal of black-market transactions that occur in bitcoin,” Haass said.
Altcoins have been touted as a universal currency that makes international transactions simple and fast.
“There are exchanges where you can buy bitcoin for dollars,” Haass said. For example, the day Haass spoke to The Daily Courier, one bitcoin was going for $6,817.
“That’s well off of its peak,” he said. “It peaked at nearly $20,000, so it’s lost more than 50 percent of its value.”
Altcoins also have subdivisions, down to the latest smallest denomination, the satoshi, which is one one-hundred-millionth of a bitcoin. That makes for a much more precise transaction than U.S. currency.
The popularity and value of altcoin moves up and down like stock prices. Just as with stocks, too, the value represents how many units of “fiat” currency people are willing to trade for cryptocurrencies. The fluctuating value doesn’t necessarily indicate a problem with altcoin.
Cryptocurrency exists only digitally on computers, mobile phones or tablets. It’s stored in a digital cryptocurrency “wallet.”
For now, only a few retail businesses and some nonprofit organizations accept bitcoin. That means most of it is being held.
And the future may well be in the altcoin realm, said Haass, or at least, in the technology that makes altcoin possible.
“Blockchain is being investigated for use on the stock market, for use with exchange rates, for use in cybersecurity, and I think we’ve just started to understand the many uses of the blockchain technology,” Haass said. “And bitcoin just happens to be one application.”
With major U.S. banks like J.P. Morgan Chase entering the altcoin system, Houle said, “I think they (the major banks) have the money to buy into enough that they could actually control that market.
“Russia wants to have its entire banking system converted to crypto-based currency,” Houle added. “It’s not going to go away.”
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