Our story starts in San Francisco with a programmer, Stefan Thomas, who has a cache of 7,002 Bitcoin worth approximately $220 million (on January 12). During 2011, he was given those Bitcoin for making this animated video.
Do take a less than two-minute look:
As an online cryptocurrency, Bitcoin is accessible with a password. The programmer’s wallet, filled with his digital currency, can be emptied only with his digital keys.
And he lost them.
Bitcoin limits you to ten tries. Mr. Thomas is up to #9. If two more flop, he loses his wallet.
Because there is no way for any government or central bank to see your digital bank account, there is no central authority that lets you reset your password. Essentially, you are your own banker. Bitcoin’s creators intended that there would be no parallel to normal money. They wanted to be sure no government could have control over their cryptocurrency.
Bitcoin mining comes from “hashers” who try to figure out the complex algorithms that enable its birth. The following infographic displays the geography of cryptocurrency creation and Bitcoin’s dominance:
Used globally, the lower value cryptocurrency payments are highest in Latin America/the Caribbean and the Middle East/Africa. Below, $0-$100 transactions are shaded black, $100-$1,000, yellow, and greater than $1000, gray:
Our Bottom Line: What is Bitcoin?
The value of one Bitcoin recently topped $20,000:
But what is it?
While Bitcoin is called a cryptocurrency, U.S. regulators do not believe it is money. They’ve defined it in different ways:
- Property? The IRS said bitcoin would be taxed as property.
- Commodity? The CFTC (Commodities and Futures Trading Commission) said bitcoin was a commodity
- Money? As a unit of value, a store of value, and a means of exchange, bitcoin does not satisfy all of the characteristics of money in most countries.
- Security? The SEC said no.
Maybe though this money flower from the Bank For International Settlements (BIS) best tells us what a cryptocurrency is:
My sources and more: The NY Times has a lot more on the man who lost his Bitcoin. Then, for more on cryptocurries, I recommend this paper. I also took at look at this one but cannot validate its source. Next, for something much lighter than the two papers, WSJ had this Russian farmer’s cryptocurrency story. And finally and fascinatingly, MarketWatch detailed (in 2017) the regulatory status of bitcoin around the world. Please note that several sentences from today were in a previous econlife post.