Bitcoins is an electronic currency that is not backed by any government or institution. It has no central bank and is solely backed by the people who use it. Its worth is based on the value of the peer-to-peer system of exchange that occurs through the web. We’re familiar with emailing, chatting, and doing info searches and Anywho’s reverse phone number finder, but what do you do with a currency that is only good on the web?
Ever since the web was created, more people have found ways to retreat to an online reality. Some argue that social media, online gaming, web avatars, and online dating are just extensions of this web reality that people have invested so much stock in. Some argue that this world should also have it’s own currency.
Many worry that this whole system is unstable to begin with. Gavin Andresen, a programmer that’s worked on the bitcoin system, says himself that, “even though this currency is a lot like cash, it doesn’t exist and there’s no center to the whole system.” Yet, for people like Andresen, that’s part of the appeal. Andresen states, “For me that’s more comforting than thinking that politicians or central bankers won’t screw it up. I actually trust the wisdom of the crowds more.”
As the Internet has freed the access and exchange of information, some feel it should also foster the same approach to currency. Bitocoin is, in fact, doing quite well. Not long ago, you could get a single bitcoin for something like seven U.S. dollars. After a story appeared on Gawker, a website that featured a story that talked about how people were buying illegal drugs like heroine and LSD by exchanging bitcoins, something strange happened: the price value tripled. Now it costs over twenty dollars to buy a single bitcoin.
This isn’t to say that people are getting bitcoins for nefarious reasons. They’re using them to make simple purchases and exchanges like sweaters and shoes. It works just like electronic transfers of money that most people do when shopping online. The thing that worries economists is that people will invest too much worth in these currencies and end up losing their investment. A near triple worth hike isn’t healthy for any currency. The old saying, what goes up must come down, well…when a currency is that volatile, what happens when there’s a triple value decline? That’s what’s so worrisome about such currencies. With that said, people still seem very interested in this form of currency and it’s gaining in popularity and use.