Within just a few years, the digital currency Bitcoin has evolved from a marginal phenomenon to a worldwide heatedly debated topic. This is mainly due to the huge rise in the value of the digital currency and the temporary crash that dominated the headlines. After numerous sharp fluctuations, there was a historic moment in March 2017 when the value of Bitcoin exceeded the value of gold. In the following months, the crypto currency continued to rush from record to record until, after its peak in November 2017 (1 Bitcoin was equivalent to around $ 20,000), it fell to below $ 5,000 within a year and has now settled at around $ 8,000 (as of June 13, 2019, the current Bitcoin value can be found here). However, how could Bitcoin become this successful in such a short time and trigger a hype?

Beginnings and functions of Bitcoins

The digital currency has only existed since 2009 – the inventor Satoshi Nakamoto pursued the idea of a independent currency that could neither be controlled nor manipulated by states. At that time, a bitcoin was worth less than a cent. The term bitcoin allegorically means “digital coin” and thus defines the framework conditions: Bitcoin is a monetary unit without a physical presence. The currency is created and stored electronically. With Bitcoin, services and tangible assets can be purchased – as with ordinary currencies. The difference is that the creation of bitcoins is based on mathematics and data processing.

Bitcoin – Currency without value?

Many Bitcoin critics argue that the currency has no intrinsic value. Unlike gold, it does not exist physically – and possesses no physical security. However, exactly the same applies to paper money. In the past, banknotes were intertwined to the value of gold or silver, but today paper money only has the value traders agree upon. Value is what we attribute to something. That’s why we determine what value Bitcoin has and will have in the future.

Differences between Bitcoin and other currencies

Bitcoin is fundamentally different from other currencies: The currency is not only virtual, but is based on a decentralized network of computers that collaborate over the internet and exchange transactions among themselves. Bitcoin is independent from governments and central banks and is not controlled by any institution. Instead, Bitcoin is backed by a worldwide community. The transmission of transactions is encrypted and monetary units are verified with cryptographic keys. This mechanism exists so that the transactions can only be booked once. Those transactions are stored in a public database and provided with digital signatures. In addition, the currency is designed in such a way that no uncontrolled issuing is possible: there will only be a maximum of 21 million bitcoins (in May 2019, there were over 17.7 million bitcoins in circulation). Bitcoin is thus protected against inflation. And that is why it is likely that rising user numbers will lead to a further increase in value.

Origin of Bitcoins

If the currency does not physically exist, the question arises how bitcoins are created at all. A blockchain (transaction chain) forms the basis of the Bitcoin network. This is where all transactions are stored and listed chronologically. So-called miners are responsible for the creation of bitcoins. These are people who work on their computers to form a block chain. The bitcoins are not stored on a single server, but distributed to millions of miner computers. With their hardware, the miners support the calculation of the bitcoins according to a mathematical and self-regulating system: With the increasing amount of bitcoins, mining by an algorithm becomes more and more difficult. The miners themselves receive bitcoins as payment. The higher the capability of the miner’s hardware, the higher the benefit for the currency and the higher the profit for the miner. The Bitcoin system or the blockchain is dependent on the mining of many different computers and cannot exist without it.

Bitcoin Mining
Bitcoins are created by so-called miners.

Rapid increase in the value of the Bitcoin

Why has Bitcoin become so valuable in such a short time? For the simple reason that the acceptance of Bitcoin has increased and today you have more possibilities to purchase items with it than several years ago. Many technology and trading companies accept Bitcoin just like any other currencies or payment methods, and smaller companies are also joining this trend. In addition, there are only small fees for the consistently anonymous transactions and thus, the popularity is increased. The more popular the currency becomes and the more it is used, the more valuable it becomes due to the fixed maximum of 21 million bitcoins.

Bitcoin inventor remains a mystery

For years, there were only speculations about the inventor (or inventors) named Satoshi Nakamoto. There were repeated attempts to identify the actual person behind Bitcoin – without success. In 2015, Australian entrepreneur Craig Wright claimed to be the inventor of Bitcoin. With a cryptographic key allegedly used to create part of the first bitcoins, Wright seemed to have confirmed his identity to journalists – until doubts arose. Because of this, many questions remain unanswered as well as inconsistencies and gaps have opened up. According to the Economist, it will probably remain impossible to determine Satoshi Nakamoto’s identity without reasonable doubt.

Getting rich with Bitcoins?

In recent years, Bitcoin has increasingly become an alternative payment method in many areas and that’s the sole reason why its value has increased so massively. However, the currency is still characterized by considerable exchange rate fluctuations. How the value of Bitcoin will develop in the future remains to be seen. Therefore, it is not advisable to regard Bitcoins as a secure investment option. In addition, certain knowledge in computer security is necessary, in order to store bitcoins safely on the PC. Caution is especially required, as the anonymity of the currency in the Darknet attracts many criminals. Additionally, there have been repeated thefts in the past by hackers of crypto currencies on electronic wallets, which have also caused the Bitcoin rate to fall. It remains to be seen how the currency will develop in the coming months. In any case, it will remain exciting!

About the Author

Christine Gierlich - Account Manager at HBI PR

Christine Gierlich
Account Manager at HBI Helga Bailey GmbH – International PR & MarCom

Christine Gierlich has been serving B2C and B2B clients since 2016 and is specialized on social media, content creation and the development of PR campaigns. She is also part of HBI’s marketing team and responsible for internal marketing activities.

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