Money sits at the core of our civilization. Without it, there would be no business, no profit, no income, no livelihood—at least, not in the modern world we have constructed for ourselves. By definition, money is anything commonly accepted by people for the exchange of goods and services, but we all know it’s a lot more than that. Money is the glittering sheen on life, the assurance of getting what you want, what you deserve, and the great protector from the sharp edges of poverty.
Throughout the ages, the notion of currency has changed considerably, yet it has also remained the same. Back in 5,000 BCE when money came in the form of shapeless metal objects, it still held sway over countries and citizens who later minted it into coins with specific values. This material gave way to more convenient and creative ones like salt, cattle, tea—anything that would alleviate the problems of bartering with a disagreeable neighbor. But these commodities were perishable and difficult to store, and so new money was created out of precious metals and specialized paper, creating a structure of values and promises for both the people and their government. Today, our currency is not backed by silver and gold, but rather, by the decree that it has value. It is our agreement that gives it worth and acceptance as the law of the land.
How has our money changed?
These new days of technological headway are tricky. With the invention of screens and virtual life, our landscape, our priorities, and our larger vision of the world has changed, so why not our money? If the emerging age of innovation has taught us one thing, it’s this: a lot of what we hold valuable can no longer be touched or held in the palm of our hand. The feeling of security we used to find in touching our money has morphed into a need for trust in the online system that handles our account numbers, our balances, and our invisible fees.
When is the last time you stepped foot in a bank? Not so long ago, people used to stand in line to receive their money in hand—fresh, green, and ready to spend. They would stuff in their mattresses, put it in coffee cans, and keep it stored away where it could always be reached. But nowadays, our money has no real weight; it’s just a number on a screen. And this lack of physical connection, this virtuality, has opened up a host of new ways to think about money and has given birth to age of cryptocurrency.
Why is Bitcoin special?
On the forefront of this digital currency is Bitcoin (BTC), a medium of exchange that relies on cryptography to manage its creation and management. Unlike traditional money, bitcoin does not rely on central authorities and banks for regulation. Since it was decentralized and virtually minted in 2009, BTC uses a public ledger known as blockchain to record all transactions. While this has emancipated the currency from most oversight and authority, it has also placed our most valuable asset—namely, money—in the hands of a network of communication software nodes, all running together to perform the blockchain. This distributed database is independent of the government, largely untraceable, and basically unregulated.
But this does not mean BTC is without integrity or value. In fact, it has taken the age-old practice of using conventional ledgers and records and streamlined it into a virtual form of “blocks” which are constantly created and added to the blockchain. So what was once a stack of papers, written numbers, and scribbled calculations is now a block of data, existing only in cyberspace. You cannot hold BTC in your hand or stick it in your pocket for spending. But make no mistake about it, its luminous on-screen value translates into cold hard cash when handled properly, and that is precisely why the time has come to understand the power of bitcoin and the larger significance of cryptos.
When did Bitcoin actually become real money?
Although digital cash currencies have been around for a while, the notion of a peer-to-peer network generating “a system for electronic transactions without relying on trust” began circling the web only a short time ago. Formed under the alias Satoshi Nakamoto and released as open-source software in 2009, BTC began to take off, eventually making making its first real-world purchase of two sausage pizzas from Papa John’s for 10,000 coins. Up until that point, the value of BTC had only existed in theory, not in practice. But when those pizzas arrived, it became something much more—it became actual currency.
Because the initial exchange rate for BTC at that time was 1,309.03 BTC to one U.S. dollar, the cost of this cheesy goodness was around $25.00. Today, one BTC is worth well over $6,1000, making that same Papa John’s takeout worth $61 million today. That’s right—$61 million. However, it’s worth noting these same two pizzas were actually worth $82 million in May of this year—a testament to its astonishing volatility. This exchange now stands as a major milestone in BTC’s history and is the emblem of how a cryptocurrency that cannot even be held in your hand has changed the world of money forever.
Why is Bitcoin not more popular then?
So, if BTC is all that, why has it not taken over the global marketplace? The answer is volatility, a nasty reputation, and a certain measure of fear. As a puritanical nation, we have a hard time looking past the sordid to find the existing value in things. If it smells bad, it must be bad, right?
Even though it spiked in 2014, the promise of a tamper-proof money system was already being written off as problematic within two years. Because the first adopters of bitcoin were infamous for being frauds, criminals, and dark web drug lords, it never really stood a chance against the tides of morality. And when the FBI took down the notorious Silk Road on the deep web, it’s rogue reputation grew even more, reminding everyone in respectable business that the term “bit” should never be part of the conversation. It seemed BTC had jumped the shark and landed in the deep end without a floatie.
And to make matters worse, it seemed the digital currency had no reliable set value. Imagine if the balance of your bank account suddenly dropped by $100. Most people would freak out. But in the world of cryptos, this unpredictability is commonplace. On the flip side, digital money can also experience a significant increase for no apparent reason. And that unpredictable flip flop of finances, or volatility, poses some real issues for cryptocurrencies.
To be fair, all money fluctuates to some degree and is subject to the volatility index of the market. But with monies like BTC, the scale has so much range, the movement can feel dramatic and highly unsettling. (Unless of course, it’s on the rise, and then it just feels awesome.) This volatility is due partly to the bad press and panic surrounding BTC but is also the result of how its perceived value has yet to be fully established. BTC has not even begun to settle into a set and reliable number. As a result, people don’t really understand cryptocurrency and are afraid to trust what they don’t know, especially when the store of value is so unclear. Yes, it has a nearly frictionless transfer ability, but in what market can such a shifting currency be applied? What is the intrinsic value of digital money, and how can it really be used in relation to fiat currencies? Isn’t is just for those looking for anonymity?
The answers to these questions are emerging and changing as bitcoin grows, but the fear remains. This monetary convergence of the traditional and the virtual is more than unpredictable; it can be downright baffling. And until these fine lines are ironed out, it’s not clear how someone with a large amount of bitcoin would ever be able to liquidate such a holding into a fiat position. And let’s not forget the most perplexing characteristic of all—while old fashioned money is comprised of raw materials we can see and touch, BTC is based on code. And as such, it is susceptible to exploits, hacks, and the need for security solutions. In this way, the value of BTC is just a reflection of the confidence the community has in the overall protocol design. So anytime there is a security breach, the value of the currency fluctuates. When it comes to securing our money, the notion of an unbreakable, steel safe can still feel more familiar.
What could cryptocurrencies like Bitcoin do in the future?
The contrasting views on how BTC could influence the global marketplace were perfectly illustrated in 2014 when China’s central bank claimed it had no “real meaning” and barred financial institutions from using it, while at the same time, Microsoft decided to begin accepting the currency for any content like games, videos, apps, and consoles. This lack of consensus on the intrinsic value of a digital money only slowed its development and pushed many investors away the risk. But regardless of its adoption rate, which has increased significantly since then, BTC has proved it can change the way consumers use, send, and store money. This alone makes it an incredibly valuable piece of technology.
Today, transferring BTC to someone is almost like sending an email; in fact, there’s no faster way to move money between people, especially in small amounts. Because financial institutions currently function much like outdated behemoths, this nimble quality makes it extremely attractive. It goes without saying that bitcoin and blockchain are destined to become an integral part of our modern banking system.
If you don’t believe cryptocurrency is here to stay, just consider the state of the copper penny. They now cost more to produce than they’re actually worth—a fact that begs the question why we even make them. Canada stopped the process several years ago, yet the U.S. persists in promulgating its antiquated currency.
When looking around at our lives, it’s clear we are going virtual, into the cloud, where things exists without edges or borders. Why should our money be any different? And while it’s possible BTC itself may end up being just a precursor to a more comprehensive, government-sponsored digital currency, there no denying it has opened our eyes to the brave new world of spending.