#TIC104 Summary: “Why Bitcoin Has Value”

This article from the ACM discusses the virtual cryptocurrency Bitcoin and how its non-existent exchange rates, automatic transaction records and near-complete anonymity make it a currency valuable for many things that currencies backed by governments are not optimal for.

The first point the article brings up is that of the fact that the same Bitcoin cannot be spent twice, as the Bitcoin system keeps track of each coin’s individual transactions and new coins cannot be forged, even by someone who has all of a coin’s transaction information. The article also details is that Bitcoins can be transferred between users and into different currencies for next to nothing compared to the rates attached to government backed currencies.

Of course, unregulated currencies come with their own risks completely separate from those of backed currencies. For one, the anonymity of Bitcoin prevents the creation of the paper trails that are created with other currencies, allowing Bitcoin to be used for criminal transactions, allowing the authorities much less information that could be used to track down those using the currency in the trade of illegal goods, such as illegal drugs, weapons and child pornography.

A personal interjection: lack of regulation also contributed to the Mt. Gox disaster in Feburary 2014, where the world’s largest Bitcoin exchange (handling 70% of all Bitcoin transactions at the time) closed down, taking with it 850,000 BTC, a value of $598,034,500 USD at the time. People who lost their money in the shutdown never got it back, as the exchange did not have the insurance that a bank that handles government backed currencies would have.

Leave a Reply

Your email address will not be published. Required fields are marked *