Bitcoins have been called cryptocurrency, fake money and virtual tokens but whatever label you use the meaning remains constant: it’s something people use to exchange goods and services. However, despite the similarity to physical dollars, the bitcoin differs from it in several important ways.
First, there is no central authority. US dollars are backed by the Federal Reserve bank, Bitcoins aren’t backed by anything and therefore are completely unregulated.
Second, users actually create the Bitcoins. This sounds unsavory but when you think about how it works things will makes a little more sense.
Through a process called Bitcoin Mining, people install special software that solves complex math problems. In exchange for the hard work (your system’s computational power) the bit coin network rewards miners with Bitcoins.
The Bitcoins are apportioned based on the users that donated the most computational mining power. Also, there are a finite number of Bitcoins in existence, 21,000,000, so the total supply shrinks with time which provides an incentive to sign-up for ambivalent early adopters.
Bitcoins obviously aren’t as ubiquitous as real currency; however, hundreds of small businesses already accept Bitcoins. You can even exchange bit coins with other users as an investment.
And that brings me to today’s article about the all time Bitcoin high of $270.
According to Coindesk, these soaring Bitcoin prices are most likely related to big buyers, such as SecondMarket’s Bitcoin Investment Trust (BIT), which made a 2 million dollar seed investment in BIT. The BIT is even listed on the Bloomberg terminal with a $25,000 dollar buy-in.
The demand for Bitcoins is also surging because of the favorable media coverage trumpeted over the last month. Just do a Google search for bitcoin and you’ll see what I mean.
Finally, the last and perhaps most important contributing factor to the Bitcoin surge is the burgeoning desire for Bitcoins in China. The Chinese exchange , BTC China, is now the largest digital currency exchange in the world.
Do you think the Bitcoin rise will continue? As we move into 2014, the press will undoubtedly continue to cover digital currency exchanges and this could be the catalyst for a faster adoption rate.
Also, do you think today’s surge is a harbinger that the Bitcoin markets is about to crash? Let me explain my presentiment:
Whenever you look at a “hockey-stick” graph that tracks economic trends you should always expect that a fall is imminent. That’s because people get greedy and therefore the markets become volatile and plummet.
What do you think? Am I right or wrong? Let me know in the comments!