Bitcoin: Boom or Doom?
Since the beginning of October, the value of Bitcoin has been on a meteoric rise. On September 28th, Bitcoin’s value broke $4,000, and while it hasn’t only been up from there, each dip in value was soon overcome with a much large uptick. It seems like the cryptocurrency can’t be stopped, even after Tether (a company distributes cryptocurrency digital tokens backed by dollars, euros, and yen) was hacked on November 30th and claimed that over $30 million worth of tokens had been hacked and stolen. Bitcoin’s value reportedly dropped by 5%, but by Tuesday afternoon, it had bounced back, reaching a record high of $8,362.30.
Of course, on November 29th, just over a week later, Bitcoin’s value broke $10,000, and on Monday, December 4th, Bitcoin hit $11,500, making billionaires of people like Olympic rowers the Winklevoss twins. They are currently the first public figures to claim the title, although some experts feel that Satoshi Nakamoto, the elusive creator of Bitcoin, may actually be the Bitcoin billionaire worth the most. In fact, experts suggest there may be as many as 200 Bitcoin billionaires in the world. However, the fact that many people who invest in Bitcoin do so over multiple addresses make it hard to pin down specific individuals.
As Bitcoin’s value increases, it may seem like now is the best time to invest. After all, it seems like an investment of $10 today could end up being a payout of $25 tomorrow. Still, some experts are beginning to wonder if the Bitcoin bubble is about to burst. Many feel that the surge in value is reminiscent of the Dot-Com burst, and that it’s relatively vertical ascent is going to lead to a nasty downfall.
This graph from coindesk.com shows the price changes Bitcoin has gone through over the course of the day. The actual graph on the website continuously updates as Bitcoin’s value rises and falls.
But even if the bubble doesn’t burst, I still find myself questioning the sustainability of cryptocurrencies as a whole. Very recently, Vice released an article about how one Bitcoin transaction uses as much as power as the average household does in a week. At the beginning of the year, they released an article about how one Bitcoin transaction uses three times the amount of power as the average household in a day, and in 2015, one transaction used as much power as nearly one and a half households in a day.
When this was brought to my attention, I was caught completely off guard. I know cryptocurrencies use computers to run all the transactions, but surely it isn’t any more complicated than making a transaction at the bank, right?
As it turns out, cryptocurrencies are a lot more complicated than online banking, and they have always used significantly more power. This is because almost all cryptocurrencies either run on either a Proof of Work or Proof of Stake system to unlock and distribute coins. This process is known as mining, and all cryptocurrencies use it not only to to control the amount of coins available for distribution, but also as a way to verify that a transaction has taken place.
Dogecoin is one of the many alternative cyrptocurrencies on the market, and silly as it may seem, it’s actually one of the top ten best cryptocurrencies available.
Mining Bitcoins, or one of the 700 other kinds of cryptocurrencies on the market, involves solving a computational puzzle known as a hash, which then opens up the next block on the chain. Which doesn’t seem like a very big deal, but the problem is that with every coin unlocked, the hash gets more and more complicated to solve. The more complicated the hash becomes, the more computational power miners need to invest towards unlocking the next coin. As a result, some miners have rigs of processors that take up an entire room.
This kind of superfluous power use is a little bit concerning, especially when the threat of global warming looms ever closer. Surely there are better uses of this energy output. What can you even spend cryptocurrencies on?
The most well-known use for cryptocurrencies right now is paying off the ransom for those ever increasingly frequent cyber attacks. After all, Bitcoin’s foundation is built on being a decentralized and pseudonymous, making it the currency of choice for everyone from hackers to scam artists. Luckily, supporting hackers is not the only thing Bitcoin is good for, as many online and physical store locations are starting to accept them, but there still is a way to go before Bitcoin becomes as ubiquitous as an American dollar.
Of course, because of the violent fluctuation of the currency over even the course of a day and the high fees transfer fees, some places, like Steam, may start pulling Bitcoin as a payment option off the shelves. Just this morning, Bitcoin’s value surpassed $15,000, then dropped down to $14,800, but who knows where it will end up by the end of the day. Despite how exciting watching the value go up may be, you can’t really build a practical currency around something so unstable.
In the end, cryptocurrencies are still a new type of technology, and society hasn’t quite figured out what to do with them. There’s a boom in value, but many booms happen because those who invested in Bitcoin early are currently experiencing an outrageous windfall, and it’s natural for other people to want to join in. But what happens if the bubble bursts? What happens if it doesn’t?