Bitcoin

 

Contributed By: Jon Freeman

 

It has been all over the news, and there have even been articles in the Wall Street Journal, and a cover story on Barron’s about it recently. Why all the recent interest and hype in bitcoin? Simple, bitcoin’s skyrocketing value. Last December, a bitcoin was worth about $1,000. Earlier this month it was up by roughly a 500 percent increase in one year. Thanks to its skyrocketing value in recent months you have probably heard about it.

What is bitcoin? Bitcoin is a currency, similar to the dollar, yen, or euro. However, unlike traditional currencies, bitcoin isn’t issued by a government. It’s a virtual currency created in 2009 by an anonymous person who went by the alias Satoshi Nakamoto.

As with traditional currencies, bitcoin’s value fluctuates as it is traded in an open market against the dollar, yen, etc. Bitcoin only has value because bitcoin believers say it has value. Bitcoin is based on a secure data transfer system called blockchain technology. Blockchain is a digital ledger technology designed to securely track a history of transactions.

Think of blockchain this way. Remember the game “telephone” that people would play as kids. Here is a refresher for you – the game went like this: There was an initial phase, and each kid was asked to whisper this phrase to the kid next to them. On and on down the line of kids it went. The interesting part of the game was that it seemed every time the game was played the phrase invariably changed from the first kid to the last. You may have started with something like “peanut butter sandwich,” but the final player would announce that the phrase was “insect with legs.” And it seemed like the more players in the game the more inaccurate the ending phrase was from the beginning phrase. Therein is the example of how layers of transfer can change data, oftentimes impacting it to become inaccurate over time.

Now, let’s imagine a game of telephone using blockchain. Every time there was a whisper down to the next kid, every player would have to verify the phrase with every kid who went before him or her, making sure that they heard the phrase perfectly right before they could move on to the next player. So, kid 6 would have to verify with players 1-5 before sharing the phrase with kid 7. The phrase would be re-verified all the way back to the first kid each time it traveled to a new kid. This is similar to how blockchain technology works.

Now that you know a little something about bitcoin, on to your next question: Should you be investing in it? I cannot predict the future and really no one knows what will become of bitcoin. I am also not here to tell you how to invest the money in your portfolio. But if you want to know more about bitcoin here are some links you can use to learn more about it:

CNN Money
Clark Howard
Washington Post

Remember that you can always access more personal finance information from the Gwinnett Library’s GCPL Personal Finance Guide.