It’s Time to Pay Attention to Bitcoin
There are many reasons why people don’t think of bitcoin as a legitimate form of virtual currency; one is that people still associate Bitcoin with the 2013 debacle called “The Silk Road,” a marketplace on the dark web that exchanged illegal goods and services, with most transactions paid for with bitcoin. Another reason people still seem ambivalent about bitcoin is that most retailers wouldn’t take the cryptocurrency until a few years ago.
Bitcoin was the brain child of inventor Satoshi Nakamoto. Who that is, is still a matter of debate, but that’s for another article. The Bitcoin.org website was launched in August 2008. On Halloween of the same year, through a cryptography mailing list, Nakamoto published “The White Papers” which outlined the bitcoin currency and overall design of the format.
According to Historyofbitcoin.org, the first bitcoin transaction was on January 12, 2009, between Satoshi Nakamoto and Hal Finney, a developer and cryptographic activist. In October 2009, New Liberty Standard published a bitcoin exchange rate that established the value of a bitcoin at $1 = 1,309.03 BTC. This rate was based upon an equation that includes the cost of electricity to run a computer that generated (or mined) bitcoins. Mining bitcoin requires constant computational power in multiple locations and the on-going electrical power is costly. The first, real-world transaction using bitcoins took place on May 22, 2010, in Jacksonville, Florida, when a computer programmer offered to pay 10,000 bitcoins for a pizza. The exchange rate then put the price of the pizza at around $25. At the time of writing this piece, those 10,000 bitcoins are valued at $10,105,800.00.
What makes Bitcoin different and some say even more important than actual paper money? Bitcoin is viewed by enthusiasts as more transparent than traditional currency. Every single movement of bitcoin is kept via a digital ledger. It is nearly impossible to counterfeit. It is decentralized, which means you are the sole owner of it. Unlike paper money, it can’t be burned, lost or ruined in any way, and your identity is private as it’s the bitcoins themselves that are accounted for in the ledger. To many it is the safest, fastest and most private way to buy goods and services. To the nay-sayers this is also why the cryptocurrency lends itself to use on the “Dark Web” and in the exchange of illegal goods. Besides this obvious pitfall, other potential downfalls are the volatility of bitcoin; at its peak in November 2013, bitcoin was worth $1,242. Since 2013, it has fallen to as low as $206 and rebounded back up to its current worth of $1,010.58.
The IRS treats bitcoin as property, an investment, much like having silver or gold. In order to liquidate this investment, you are taxed based upon the increase in value since the time of initial investment.
While it’s true there have been some cases of “theft” of bitcoin, compared to paper money, enthusiasts argue that bitcoin is substantially more protected from cases of theft and counterfeiting than traditional currencies.
Michael Adkins, who not only has built highly encrypted machines for the Federal Reserve, but who also mined bitcoin in the earliest stages of its development and currently holds twenty percent of all his investments in bitcoin sees bitcoin and blockchain technology as the way of the future: “[Bitcoin] has enormous global implications from personal banking to transparent government spending. Due to the potential impact in multiple sectors of global society, it actually has the potential to be more important than the internet itself.”
Adkins may be right. Bitcoin is now accepted at over 100,000 retailers worldwide: Microsoft, Home Depot, Amazon, Overstock.com, Target, CVS, WordPress.com, Subway, Victoria Secret, PayPal, Expedia, Sears, the Apple App Store, Zappos, and EBay just to name a few. And still other stores like The Gap, Whole Foods, JC Penney and Game Stop take bitcoin converted to an e-gift card through easy to use sites like Gyft and eGifter.com.
And, there are sites accepting bitcoin exclusively like “Bitcoin.Travel” for making travel reservations. Domino’s Pizza created PizzaForCoins.com. There are bitcoin ATM’s; one is right here in Detroit.
Students can now use bitcoin to pay for college; Kings College in NYC began accepting pay by bitcoin in 2014 following in the footsteps of a handful of other universities in Europe.
Major companies like JP Morgan, IBM and Intel are investing in research and development of blockchain technology, the format through which all cryptocurrencies like bitcoin are developed.
Governments are taking bitcoin seriously. The use of Bitcoin keeps growing; even the Republican Party of Louisiana accepts Bitcoin donations.In 2015, New York State adopted special regulations created just for bitcoin use. Even though they won’t yet recognize it as legitimate currency, the United States government has auctioned off seized bitcoins multiple times in the last three years, most recently in August 2016, when the federal government auctioned off $1.6 million of bitcoin. In the town of Zug, Switzerland, citizens can now pay for government services with bitcoin.
With all the places now accepting bitcoin and the ever-growing diversity of uses, the perception of bitcoin as the cryptocurrency used on the illegal “Dark Web” or as a virtual fad is changing. Bitcoin may become the next “Internet” scale phenomenon and could forever change personal, business and governmental financial structures around the globe.