On May 22, 2010, a developer paid for two pizzas with 10,000 units of the digital currency known as bitcoin. Today, 10,000 bitcoins are worth more than $40 million.
For many people, bitcoin appeared out of thin air already having enormous value, and it remains a mystery because of its anonymous creator, its questionable viability and sheer complexity as a concept.
The popularity of this mysterious digital currency continues to rise and some are even asking if this could be the currency of the future. Just a year ago one bitcoin was trading at $443. At the time of this writing, the value of a single bitcoin is equal to around $7,500, according to Coin Desk’s Bitcoin Price Index.
The concept of the digital currency was first released to the public on October 31, 2008 when it was published to a cryptography mailing list in a research paper called “Bitcoin: A Peer-to-Peer Electronic Cash System” by an anonymous person who goes by the pseudonym Satoshi Nakamoto. It wasn’t until January 2009 that Bitcoin was implemented as open source code and released for public use.
Bitcoin is currently being used to purchase real and digital products online and in person. They are stored in a “digital wallet,” which typically exists in the cloud or on a user’s computer. It’s like a virtual bank account that allows users to send or receive bitcoins, pay for goods or save them hoping they go up in value. However, these bitcoin wallets are not insured by the FDIC.
Arguably the best thing about Bitcoin is that transactions are made with no middle men, which means no banks are involved, and there are no transaction fees. When someone buys something with bitcoins, they remain anonymous because there is no need to give your real name.
Each bitcoin transaction is recorded in a public log similar to a ledger, but the names of buyers and sellers are never recorded, only their wallet IDs. The anonymity factor also allows users to buy or sell anything without it easily being traced back to them, which is why bitcoin has become the currency of choice for people selling narcotics, weapons or other illegal transactions.
Bitcoins are not tied to a particular country or subject to regulation. There are several marketplaces known as “bitcoin exchanges” where people can go to buy or sell bitcoins using different currencies. Bitcoins can also be sent using mobile apps or computers, similar to sending cash digitally.
But users can also earn bitcoin by doing nothing more than providing computing power. Mining, as it is known, is when users let the system spend their computer power to process transactions, secure the network and keep all users in the system synchronized. This network of miners create a decentralized data center which operates around the world with no users possessing control over the network.
Predicting Future Value with Big Data
One major stigma surrounding Bitcoin is its volatile nature. Overall the value of bitcoin has continued to rise since its release in 2009, but a number of events in recent years have caused the value to fall unexpectedly. In March of 2013, there was a technical glitch that caused a fork in the blockchain, which is the public ledger that holds all bitcoin transactions.
Two separate blockchains existed for six hours causing the value to drop significantly. The value dropped once again near the end of 2013 when the creator of the Silk Road was arrested because bitcoin was the preferred method of payment on the site due to its anonymity. It also fell when one of the largest bitcoin exchanges known as Mt. Gox went offline.
The lack of predictability has users looking for a way to forecast the future value of bitcoin in an effort to help minimize some of the risk. Once again, Big Data has stolen the show.
Social data prediction in particular has gained a lot of popularity as a way to forecast the value of bitcoin. Below are some of the characteristics that make Bitcoin an ideal market for social prediction.
- The number of bitcoins on the market is predictable and are not tied to any physical goods, which means the value of bitcoins depends almost solely on market demand.
- Bitcoins are mostly traded by individuals rather than large institutions.
- Events that affect the value of bitcoins are typically announced first and foremost on social media.
- Bitcoin users tend to be in the same demographic as social media users so their attitudes and opinions toward bitcoin are well documented.
A company known as BTC Predictions has started to use neural networks to predict future bitcoin price movements on an hourly basis. A 24-hour, 5-day and 20-day forecast is posted on their website. The predictions are created by a software that analyzes millions of bitcoin transactions that have taken place over the past several years. The software uses a computational model called an artificial neural network to search through immense data and find patterns in the rise and fall of prices.
Users should take caution when looking at websites with prediction models like this because the accuracy can be questionable, especially for predictions that are farther out. BTC Predictions’ 24-hour forecast has been found to be relatively accurate, but their 20-day forecast varies greatly.
The website also has a disclaimer warning users who are making decisions based on their predictions. While companies like this can roughly forecast trends by examining in-depth analytics, they cannot account for dramatic fluctuation that can be caused by a real-world event.
What is Bitcoin Currently Being Used For?
Bitcoin users are sure that the mysterious cryptocurrency will go mainstream one day, but the question is when.
As a currency that is driven by a massive network of computers spread across the globe rather than a central government, it has been slowed by regulatory problems, particularly in the U.S. However, this is happening less and less because of regulators in New York helping lead the way.
Despite the slow adoption, Bitcoin’s future is bright because it can provide a much cheaper and simpler way of moving money from place to place, especially when you’re a consumer or a buyer moving money internationally or accepting payments online.
The price of bitcoin continues to fluctuate, but that’s not what matters the most. What matters is whether people are actually using bitcoin, and they are, more than ever. Below are some of the ways people are using bitcoins today.
Bitcoin users can buy thousands of legal items with the cryptocurrency. Major retailers accepting bitcoin include Expedia, Overstock, Microsoft, Subway, Gap, GameStop and JC Penny. Consumers are also using bitcoins to purchase illegal items or services. Before Silk Road was shut down, people were reportedly swapping bitcoins for things drugs, stolen guns, forged documents, even hitmen.
The constant rise and fall in the value of bitcoins has a number of people wanting to invest in the cryptocurrency. However, there are very few alternatives to investing in bitcoin without having to actually purchase the digital currency and then wait patiently to see if the price goes up.
Some of the other options for investing include mining your own bitcoins or buying shares in a fund that has invested in bitcoins. Critics, such as Business Insider CEO Henry Blodget, make the argument that bitcoins have no intrinsic value, like gold would. They say people are “gambling in bitcoins rather than investing in them.”
Some are saying that bitcoins are more like tulip bulbs, because when the bubble bursts, bitcoins could be worthless. At the same time, some argue that bank notes have no intrinsic value either, but they are backed by governments that have a strong interest in keeping their value relatively stable. Most governments don’t care what happens to bitcoins, at least not yet.
The anonymous aspect of bitcoin has drawn cybercriminals to the currency. When the price of bitcoin shot upward a few years ago, ransomware attacks followed. When your computer gets infected with ransomware, it encrypts important files and demands a bitcoin payment to a specific address in exchange for the key. In their quest for untraceable money, these criminals have found a solution in bitcoin– a few hops in the blockchain and the money is basically clean. With no FDIC coverage, when that money is stolen, it’s gone.
Bitcoin’s Potential as the Currency of the Future
According to Forbes, we’re still far from bitcoin or any other cryptocurrency being officially recognized by a state government as a preferred mode of currency. Bitcoin’s price range fluctuated 35% recently after a proposed exchange-trade fund by the Winklevoss Bitcoin Trust was denied by the U.S. Securities and Exchange Commission due to concerns that the currency could be used for illegal purposes like black market trading. However, Bitcoin supporters have not lost hope.
But 2017 has been the year to watch out for as far as alternative currencies are concerned. Along with a number of major retailers, several colleges have started to accept bitcoin as a means of payment – a move that will surely help bring this alternative currency to the mainstream. Some schools are even taking acceptance of bitcoin a step further by hosting classes about bitcoin and other kinds of cryptocurrencies as a part of degree programs.
Most recently, the some officials inside the Russian government started to express an interest creating a state-backed “cryptoruble,” as it’s being dubbed. But key players in the Russian banking system see cryptocurrency as fragile and are opposed to trying to regulate it.
“China doesn’t recognize cryptocurrency as payment,” Bank of Russia Deputy Governor Dmitry Skobelkin told reporters earlier this year after meeting with Chinese central bank officials. “Our views are absolutely similar. In our view it’s a sort of a financial pyramid that may collapse at any moment.”
Overall, acceptance of Bitcoin has already led to a few companies considering investment opportunities in the currency in an effort to further push it into mainstream use. Most will tell you that it is too soon to tell if bitcoin or some other type of cryptocurrency will eventually become the new norm, especially since there is no shortage of regulatory hurdles that will have to be cleared before that can happen.
In the end, bitcoin offers an opportunity to re-imagine how the financial system can and should work in the internet era. Going mainstream with bitcoin would reshape that system in ways that are powerful for individuals and businesses alike.