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The Bitcoin Phenomenon

posted by Chris Valentine

The global economy has not really recovered since its collapse in 2008. People are concerned and preoccupied with money and earning money, and the ever decreasing amount of it. As jobs become scarce and prices continue to rise, people are left dumbfounded as to the real value of their “assets” and their “money”. The world has seen many financial falls and rises since the great Depression of the 1930’s. Although the current financial crash is not as aggressive or severe as the most pronounced financial crisis in history, it has brought up many questions about the value of “money”.

Money is used as a means of exchange. It exists in various forms in countries around the world: as coins and notes in different currencies. In recent times, the value of money was never questioned, until the value of other items, and in particular, large assets, were deemed to lose their monetary value. The housing market threw us through a loop: how could our half a million dollar house is suddenly worth a quarter of a million dollars? Who decided that the monetary value of a property was suddenly less? And does the monetary value of money remain a constant?

Of course, despite this confusion, there is little we can do to change it. But we can watch in awe as governments argue and debate over the validity of “currency”. This has come to the attention of the public due to the recent phenomenon of “Bitcoins”. “Bitcoins” are an online virtual currency, which can be used as payment in many online stores. But they do not have any physical presence or representation. However, this is true to all currencies, which have insufficient physical forms to represent their number or population.

Bitcoins have presented a problem though: there value as a currency has increased dramatically in recent months, seemingly spiralling to ridiculously high levels. At one stage, the value of the currency was so strong; one Bitcoin was the equivalent to 1000 USD. One man, who had invested in the currency ten years ago, discovered he was a millionaire in the virtual world due to fluctuations with the currency. This drove him on a frantic mission to retrieve his customer account details, and cash-out his Bitcoins for “real” money (this seems very similar to how one gambles in a casino).

So far, the currency has been publicly denounced by two countries, Norway and China. Norway claims “Bitcoin isn’t real money” while China has been questioning the legality of the currency. However, the main issue is that Bitcoins work in a manner very similar to every other currency, so if one form of money is questioned, surely they should all be unveiled as “false” money? When China voiced their concerns over the currency’s validity, the value of Bitcoins decreased dramatically and quickly, dropping from 1,000 USD per Bitcoin to 700 USD per Bitcoin overnight. This is still much higher than the 143 USD value three months prior to the spike (which was caused by Cyprus taxation of savings which prompted people to trade their money for Bitcoins).

For now, Bitcoins are not necessary, but perhaps one day there will be a global virtual currency used solely online, and this could be it. It does raise questions about what money and currency are though, is your Bitcoin account really any different to your Paypal account? Where do those numbers come from and what do they mean? Maybe we should all go back to a barter economy and decide the value of everything ourselves…



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