In October 2013, Bitcoins made headlines when a little site called Silk Road was shut down by the United States Government. Because they are impossible to track if used in a certain way, Bitcoins were perfect for buying and selling drugs and other vices on the once-premier online black market. Though at least one illegal use for this online payment method has been eliminated, many are still wondering if the highly unregulated Bitcoin can be thought of as “real” money.
Introduced in 2009 by developer “Satoshi Nakamoto”, Bitcoin (BTC) is a digital form of currency that uses person-to-person technology to expedite instant payments. A type of alternative currency known as a cryptocurrency, BTC utilizes cryptography to prevent counterfeiting. Issuance and transactions using BTC are carried out by the collective network with no fundamental authority. Users store their Bitcoins in a virtual wallet, while transactions are verified by an online signature known as a public-encryption key. Approximately $1.5 billion worth of Bitcoin is on the market, according to bitcoin.org.
As the software required for Bitcoin transactions is public, anybody can use it. Businesses and vendors of all sorts accept Bitcoins as payment, from photographers to nonprofits to criminal defense attorneys. BTC is mainly used by online merchants such as Foodler, though a growing number of brick-and-mortar institutions have taken to accepting Bitcoin revenue. Even education is joining this financial trend, if a university in Cyprus accepting tuition payments in Bitcoins is any indication (Tangel & O’Brien 2013). Merchants and consumers are attracted to BTC because it is fast, cheap, private, and cannot be taken away by central governments. In some countries, Bitcoins are known to be favored over the official currency to avoid inflation, currency sanctions, and rigid capital controls.
The monetary legitimacy of Bitcoin is hotly debated by thought leaders in business, finance, and technology. Many assert that the volatile fluctuation of value per BTC indicates a lack of stability that prevents it from fully functioning as currency. However, Bitcoin can be classified as money in the sense that, like all money, the system operates on a system of trust. Bitcoin’s trust is simply backed up by many code-breaking computers. Though the system lacks government regulations, certain limits and restrictions are written into Bitcoin’s software. Recently, the United States Justice Department declared that Bitcoins can be “legal means of exchange” (Coldewey 2013).
Bitcoin is backed by multiple entities that enable the currency system to operate securely. These include goods and services, advanced cryptography that prevents counterfeiting, unchanging economic rules, and immense computing power that makes transactions virtually immediate. In short, transactions are secured by technology and the economy, similar to any other type of currency (Goldman 2013).
So what does the future hold for Bitcoin? The majority of United States businesses still haven’t taken to accepting businesses, but the pro-BTC number is growing. Recently, Central Square vegetarian eatery Veggie Galaxy announced that it would be taking Bitcoin as a form of payment. The IRS hasn’t weighed in on taxing Bitcoin revenue just yet, but it can be assumed that the organization will eventually grow weary of some individuals using Bitcoins to cheat the system. Earlier this month, China’s central bank banned financial institutions from handling Bitcoin transactions in attempt to regulate the currency (Bloomberg 2013). Despite this road bump and the ongoing debate over legitimacy, the Bitcoin Boom isn’t likely to burn out anytime soon.