5 things to know about bitcoin
— -- Bitcoin has been on a volatile roller coaster this past week. The cryptocurrency hit an all-time high of $11,395 on Nov. 29 before losing over one-fifth of its value, dropping as low as $9,000 at one point on Nov. 30.
Despite the drop, bitcoin is still up over 900 percent year-to-date. So what exactly is bitcoin and how is it being used?
Here are five things to know about bitcoin:
1. Bitcoin is a form of currency. Bitcoin is a type of cryptocurrency, which is a digital currency that uses encryption techniques to control its creation and secure transactions, independent from a central bank. These encryption techniques make it very difficult to create any kind of counterfeit form. According to bitcoin.org, “Bitcoin is pretty much like cash for the Internet.” People can purchase bitcoins or fractions of a bitcoin through online exchanges or from an individual and store them in a virtual wallet. There are hundreds of thousands of retailers that accept bitcoin and millions of dollars worth of bitcoins are exchanged daily throughout the world.
2. The creator is somewhat of a mystery. In 2009, a proof of concept was published in a cryptography mailing list under the pseudonym Satoshi Nakamoto. In this paper bitcoin was called “a peer-to-peer electronic cash system.” The first 50 bitcoins were mined, the process by which bitcoins are created, on Jan. 3, 2009 -- considered to be Bitcoin’s birthday -- by Nakamoto, who is said to have left the project in 2010. The community grew and other developers took over. But ever since the inception of bitcoin, there has been an ongoing debate over the identity of Nakamoto. No one has been able to identify who or what Nakamoto is, but some have tried.
In 2014, Newsweek claimed that a California man named Dorian Satoshi Nakamoto was the creator, but he firmly denied it, claiming he hadn’t even heard of bitcoin. There was then speculation around Nakamoto’s neighbor Hal Finney, a computer scientist who was the first recipient of a bitcoin transaction. Finney described his initial involvement via a forum post on bitcointalk.org, saying, “Satoshi’s true identity has become a mystery.” In the post Finney reveals that he was diagnosed with ALS in 2009 and that at the time of his post in 2013 he was “essentially paralyzed.”
Others believe the creators could be the men behind bitcoin’s precursors, Nick Szabo and Wei Dai, who created Bit Gold and B-Money, respectively. In 2016, an Australian man named Craig Wright claimed to be Nakamoto, but could not provide proof. And then a week ago, a former SpaceX intern blogged “Elon Musk probably invented bitcoin,” but Musk flatly denied it.
Still, whomever or whatever Nakamoto is, they are believed to own about 1 million bitcoins, which would be worth around $10 billion.
3. There is a finite amount. There are only 21 million bitcoins that can ever be created and because of this fixed supply, if the demand goes up, so will the price. Not all of the 21 million have been mined yet, but once they are, that's it. However, each bitcoin can be divided up to eight decimal places and, according to bitcoin.org, “potentially even smaller units if that is ever required in the future.” Additionally, bitcoin transactions can be done in smaller units called “bits” and there are 1 million bits in one bitcoin. Currently, the total value of all existing bitcoins is more than $20 billion.
4. Bitcoin has some high-profile critics and investors. Billionaire Warren Buffett has been an outspoken critic of bitcoin. He dismissed the cryptocurrency in a 2014 CNBC interview when he urged people to “stay away from it.” He went on to say, “It’s a mirage basically.” JPMorgan Chase CEO Jamie Dimon is also a critic, who once called bitcoin “a fraud.”
But despite the naysayers, there are still many supporters. Some notable investors include Tyler and Cameron Winklevoss and billionaire venture capitalist Tim Draper. Even Richard Branson has spoken positively about the cryptocurrency. He recently invested in a blockchain bitcoin wallet start-up, which is basically a piece of software to store and use the cryptocurrency.
5. Bitcoin futures will be trading on three exchanges. On Dec. 1 the U.S. Commodity Futures Trading Commission announced that it will allow bitcoin futures trading on three exchanges: the Chicago Mercantile Exchange Inc. (CME), the CBOE Futures Exchange (CFE) and the Cantor Exchange (Cantor). This means investors will be able to bet on bitcoin without actually buying the cryptocurrency.
“Bitcoin, a virtual currency, is a commodity unlike any the commission has dealt with in the past,” CFTC Chairman J. Christopher Giancarlo said in a statement.
The CFTC, however, reminded investors to "be aware of the potentially high level of volatility and risk in trading these contracts.”
“Market participants should take note that the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority," Giancarlo said. "We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity."
