On June 6, cryptocurrencies achieved a $100 billion market cap, with Bitcoin leading the way.
These gains are in line with Bitcoin’s overall recent growth. According to Market Watch and CoinDesk, in the last year alone, Bitcoin prices more than tripled. The currency gained more than 7 percent, surpassing $2,900 per share at one point. As of press time, its current market cap is $46.68 billion, which places it ahead of other leading cryptocurrencies, such as Etherium and Ripple.
Bitcoin enthusiasts continue to endorse the system. Sean Walsh, a partner at Redwood City Ventures, predicts that Bitcoin’s price will continue to rise, according to CNBC. Redwood City Ventures is a prime investor in Bitcoin.
“It may sound like hyperbole, but I simply cannot emphasize enough how mismatched the quantity of whole Bitcoins and the population of potential global buyers is,” Walsh said.
In addition to potential for growth, part of Bitcoin’s appeal to enthusiasts is that the system’s design offers potential advantages over other currencies and conventional forms of digital transactions.One essential difference between Bitcoin and other methods of payment, such as national currencies and conventional digital payment systems like credit cards, is Bitcoin’s independence from external regulation.
Typically, currencies and credit systems depend on external institutions such as national organizations and banks. For example, the U.S. dollar depends on a complex system of laws and governing institutions, like the Federal Reserve.
Credit cards, like those issued by American Express, MasterCard and Visa, are backed by for-profit banks. Credit cards also use nationally backed currencies, so they still depend on the former system as well.
One reason why these systems and laws exist is to protect the authenticity of the money traded and to prevent double spending of the same unit of money.
With this in mind, Bitcoin offers a clever alternative system that places Bitcoin’s dependence on its users—the people, so to speak—rather than a centralized authority. To address the problem of authentication, Bitcoin relies on digital signatures, which is common practice among cryptocurrencies.
Bitcoin is unique in that it was the first cryptocurrency, or a digital currency in which encryption techniques are utilized to track the units of currency, to address the problem of double spending by using what is called a blockchain. A blockchain is made up of a network of peer-to-peer computers.
When a Bitcoin transaction occurs in the network, it is entered into a public ledger. The blockchain functions as a systematic check to preserve the sequence of transactions for each coin in the ledger and to prevent double spending. Thus, the ledger serves as a historical record for each transaction, effectively preventing double payments.
According to Bitcoin’s founder, Satoshi Nakamoto, this decentralized network of computers allows Bitcoin to achieve the same level of integrity as conventional currencies and digital payment systems. In turn, not relying on a private organization to verify and maintain the integrity of the system frees Bitcoin from many complex laws to which the aforementioned other systems are often subject.
For some users, Bitcoin also offers another advantage over other methods of digital transaction like credit cards, such as anonymous transactions. Bitcoins are stored in a digital wallet. Transactions are recorded as part of the public log, but users are identified only by their wallet ID. For users interested in trading drugs or other illicit activities, such anonymity offers a possibility of evading detection. For example, Bitcoin was the choice of currency for drug purchases on Silk Road, which was shut down by the FBI in 2013.
Bitcoin’s rapid gains have not occurred without skeptics, who have questioned whether or not Bitcoin’s rise and valuation are sustainable. For example, on June 6, 2017, Mark Cuban, the multibillionaire businessman and investor on the popular TV show “Shark Tank,” tweeted that Bitcoin prices are “in a bubble,” adding, “I just don’t know when or how much it corrects.” According to MarketWatch, Cuban called cryptocurrencies “more religion than asset.”
Bitcoin may also face other challenges in addition to volatility, such as limited opportunities to use the currency for more conventional purchases. Few people would currently accept Bitcoin, for example, as payment for a house.
Despite such challenges, Bitcoin has generated excitement, and understandably so. Bitcoin offers an interesting model for future financial transactions, in an ever increasingly digital world.
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