Bitcoins

Crypto-currencies have been around since the 1980’s however bitcoin, surfacing in 2009, has been by far the most successful.  It gained fast popularity for its ability to fix issues that plagued many of the earlier currencies.  As the first decentralized crypto-currency, bitcoins are mined by a single or groups of computers using processor power to solve complex math equations.  Numerous teams can be calculating the same block of equations at once, but the first to solve the block will receive the bitcoin.  One of the many early goals for bitcoin was to compete with banking services, those that dealt with lending and receiving money.

            The American dollar, from an economical standpoint, holds no real value, besides the trust held in the government’s ability to regulate it.  The bitcoin was designed as a currency built on a principle similar to the gold standard in place on the US dollar prior to 1971.  There will only be 21 million bitcoins and at an average rate of 25 released to the market every 90 seconds, they will become scarce and harder to mine as they deplete.  Nevertheless, in order for inflation to drive up the value, it would need to be traded.  One of the software companies that produced the hardware necessary to mine began accepting bitcoins as payment.  This created a cycle: In order to mine one needed the newest equipment, so in the time it took for the next generation of software to come out, miners had already put away enough bitcoins and could afford to buy it.  In other efforts to trade, bitcoins made their way onto the black market.  This was no surprise since it is a decentralized currency; the government had no way of tracking who was spending what amount of money.  It was also advantageous because they were very hard to trace back to an individual, which made them largely appealing and led to a strong presence on the black market.  Another way they were circulating was between users interested in sending money internationally.  This was especially common with foreign residents looking to send money back to their families at lower transaction fees.  Bitcoins allowed them to avoid substantial conversion fees that were common when sending US dollars. 

            However, these innovations did not go unnoticed.  One of the first big corporate players to pick up on the competition was Apple, who then came out with Apple pay.  Apple pay allowed a person to pay, where the vendors do not actually receive the merchant’s information, but rather an encryption.  Chase followed with a similar program that assigns a 16 digit QR code to a registered account.  These have similar characteristics to bitcoins because they keep consumers’ financial information encrypted in cyberspace when buying from vendors.   The government also preferred these programs over the decentralized bitcoin because they could see where people were spending their money.  With the introduction of these programs, the value of bitcoin began to drop and now stands at only a fraction of the original projected value.  This can be attributed to the complexity of trying to manage and trade them from a phone.  Not only does it require a vast knowledge of the market (that many people don’t have), a person also needs to download 3 to 4 simultaneous programs, whereas Apply Pay and Chase only require a single application.  In conclusion, bitcoins were definite factors in driving the financial innovation curve, but lost their charm along the way to other user-friendly programs in a day and age of simplicity.