We'd better get used to it: Bitcoin, once considered the currency of underground dealings – malware, drugs and even contract killers – is here to stay, in one form or another. A cryptocurrency – a peer-to-peer form of digital money that uses cryptography to ensure transactions can remain anonymous – Bitcoin has long been favored by individuals with a penchant for privacy.
Bitcoin first hit the scene in 2009 courtesy of the enigmatic Satoshi Nakamoto – whose identity, despite a much ballyhooed Newsweek story, still largely remains a mystery. Despite its vague origins, Bitcoin has become the most popular and most valuable of several cryptocurrencies, so much so that every incarnation spawned since, including Litecoin, Peercoin and Dogecoin, is referred to as an altcoin.
“Sadly, though, most altcoins do not offer anything new. They are all built on Bitcoin,” says Christian Decker, a researcher with the Distributed Computing Group at the Swiss Federal Institute of Technology in Zürich (ETH Zürich) who has written papers on Bitcoin and vulnerabilities presented by the system. “Altcoins have no place unless they really improve on what Bitcoin has to offer.”
Being first to the party certainly has its advantages. Namely, Bitcoin developers and users just flat out have a lot more experience with the cryptocurrency technology. And the currency has weathered the storm, surviving flaws and vulnerabilities (read: transaction malleability) and withstood exchange-side meltdowns (Mt. Gox).
At this point, even if the Bitcoin “brand” disappears, its footprint is indelible.
“I do believe that in some form Bitcoin will be successful, whether it is in the current instance, an evolution of it, or a completely new system based on it,” Decker said. “Research and industry are continually working on improving Bitcoin so that it can be used more securely and easily.”
Securely and easily are the essential traits, especially with a technology in its infancy, and with a mainstream society that has relied – heavily – on a paper currency, banking and overall financial system that has worked almost seamlessly at least as far back as the Renaissance.
But, invariably, things change. A world moving toward a more paper-free society –greener, if you will – is evidence of the value of change. But the value of Bitcoin is measured in more than just its modern, paperless approach and simplicity in enabling direct and private transactions. It has an actual dollar value – albeit one that fluctuates wildly.
In January 2011, Bitcoin was worth next to nothing. Six months later it was worth $32. More than two years after that it peaked at $1,151. By April 1, Bitcoin's value had dropped to about $486 – and that's no joke. Up and down it has gone, and though it continues to fluctuate, it is hard to ignore how financially valuable Bitcoin has become.
“It's here to stay, at least for a handful of niche demographics,” says Mike Hearn (left), a former developer with Google who now focuses on the development of Bitcoin. “I certainly hope it will become more mainstream, but of course, there are lots of very hard challenges that must be overcome for this.”
Hearn cites low transaction costs, an open platform for innovation, predictable inflation and decentralization as Bitcoin's greatest strengths. But, conversely, he says, the currency has great weaknesses; namely, it is highly vulnerable to government intervention and is incredibly easy to steal.
The latter sets off alarms, in particular for those who lack technological savvy. It definitely proves a hindrance when trying to catapult a cryptocurrency into the mainstream. Although defenses against thefts have evolved – becoming stronger every day – Bitcoin wallets and exchanges are still prime targets for virtual thieves.
In a Bitcoin exchange, where people trade other currencies for the Bitcoins, the cryptocurrency purchased is stored in an owner's digital wallet for use in transactions. Users can sign on with any number of wallet vendors that offer various services, or they can take a more manual role in handling their virtual finances. Typically, wallets are accessible across different platforms, including computers, tablets and smartphones.
From the - May 2014 Issue of SCMagazine »