By JULIA MILLER
Since January 2009, Bitcoins have circulated around the Internet as a trendy topic, but since hitting a USD value of $5,000 in September, it has begun appealing to a wider audience. Now with an exchange rate of more than $14,000 per Bitcoin, its appeal is higher than ever.
What is Bitcoin? According to its website, Bitcoin is a “distributed peer-to-peer digital currency that can be transferred instantly and securely between any two people in the world. It’s like electronic cash that you can use to pay friends or merchants.” Unlike other forms of currency (i.e. the Dollar, Euro, or Yen), there is no regulatory body.
Even as more national companies, such as Microsoft, Subway and Dish Network, are moving toward accepting Bitcoin, Mississippi financials institutions are keeping Bitcoin at a distance.
“People I’ve talked to agree. (Bitcoins) are highly volatile,” Bank of Brookhaven President Shannon Aker said. “It’s been more of an investment tool. Nobody’s excited about it.”
Aker said he did not foresee the cryptocurrency mania holding out for long, but as the numbers continue to rise the frenzy will likely only increase in the short term.
New Bitcoins are created through a process called mining. In a process similar to a raffle draw, computers are awarded bitcoins every time they solve a particular mathematical equation. The reward for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of Bitcoins created in the prior 4 years are created.
As the amount of processing power directed at mining changes, the difficulty of creating new Bitcoins changes, which results in fewer and fewer new bitcoins every year.
The maximum number of Bitcoins that will be created is just under 21 million, and projections show that number will be reached by the year 2040. As of Jan. 13, there were 16.8 million bitcoins in circulation.
The Bitcoin website explains its value stems from its usefulness and scarcity. As they are accepted by more merchants, their value will stabilize.
It also explains that this is the same concept behind the U.S. Dollar and the Euro because both of these currencies also do not have inherent value but are considered valuable due to the variety of merchants that accept them.
However, mainstream banking remains skeptical of this relatively new cryptocurrency. Los Angeles Times financial columnist Michael Hiltzik warned that Bitcoins showed all the signs of a bubble.
“Its price has run up by roughly 1,000 percent this year,” he wrote in December. “That price seems divorced from the value of any underlying commodity — in fact, there is no underlying commodity.”
Hiltzik went on to compare it to the last great bubble, the dot-com bubble, which experienced 500 percent increase before bursting in 2000.
Also in December, ex-FDIC Chairman Sheila Bair told Fox Business that Bitcoin is a volatile asset and is a bubble.
“I would say it’s, you know, people shouldn’t put their rent money there, and hopefully if you’re doing it you know what you’re doing,” she said.
In fact, Bitcoin’s website doesn’t deny this. Under a page title “Some things you need to know,” it says. “The price of a bitcoin can unpredictably increase or decrease over a short period of time due to its young economy, novel nature, and sometimes illiquid markets. Consequently, keeping your savings with Bitcoin is not recommended at this point. Bitcoin should be seen like a high risk asset, and you should never store money that you cannot afford to lose with Bitcoin. If you receive payments with Bitcoin, many service providers can convert them to your local currency.”
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