Bitcoin As A Cryptocurrency

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Introduction Four years ago, the idea of buying a pizza with a digital currency was a foreign concept. Most people hadn’t heard of Bitcoin, a mysterious digital currency that cropped up in 2009, created by the pseudonymous “Satoshi Nakamoto.” Today, almost 13 million bitcoins exist in circulation, valued at approximately $8 billion USD (1 BTC = approximately $600 USD) [1]. With the surge of popularity in the product, several spin-offs have been created, namely “Ripple” and “Dogecoin.” What do Bitcoin, Ripple, and Dogecoin have in common? They are all classified as a “cryptocurrency,” : a medium of exchange by which principles of cryptography are used to create a distributed and decentralized economy [2]. Bitcoin was the first cryptocurrency to be traded, and thus has the largest following and valuation. Where The Value Comes From While buying a pizza with bitcoins seems outlandish now, it was one of the first transactions ever to utilize this newfound cryptocurrency. On May 22, 2010, an individual paid 10,000 BTC for approximately $25 worth of pizza [3]. At that time, 10,000 BTC was valued pretty low. However, at the time of writing, 10,000 BTC translates to roughly $6 million USD [1]. See figure 2 for a graphical representation of this rapid growth. How could something with no central bank backing it suddenly have so much value? Similar to our current market of fiat money, bitcoins are priced according to supply and demand, as well confidence in the value of bitcoin. If there were no merchants who accepted bitcoin, the value would plummet, regardless of how scarce the supply of bitcoins were. As more merchants began to accept bitcoin as a form of payment, the confidence in the currency followed, which thus sparked its rapid ... ... middle of paper ... ...s changed drastically as our society becomes increasingly reliant on technology. Most of our money isn’t tangible – it’s stored in a database somewhere signifying debit or credit. Cryptocurrencies like Bitcoin take that idea a step further, and remove the middleman. Without the middleman, transactions are more secure, and no one takes a cut of your transaction. Regardless of the future of Bitcoin, cryptocurrencies seem like they are here to stay. However, for new cryptocurrencies to emerge and existing ones to remain popular, it is clear that they need to be mathematically complex to subvert fraud and hacking. They must be easy for consumers to understand, but also advanced enough to remain decentralized and preserve anonymity. These concepts are what have helped Bitcoin become so popular, and are tantamount in maintaining trust from both merchants and consumers.

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