With the price of a single Bitcoin exploding by 4000 percent just since January and by 400 percent in the last month, concerns are increasing about its legitimacy as a viable Internet money that could effectively serve as an alternative to central banks’ currencies.
The Bitcoin morphed from an Internet algorithm to legitimacy beginning in August when a federal judge ruled that the digital currency serves as money just like the dollar, the yen, and the yuan. It gained further legitimacy when China’s giant Internet provider Baidu announced in October that its website firewall division would begin accepting Bitcoins. The nearly 20 Bitcoin trading platforms located in China now handle more than half of the world’s Bitcoin transactions.
The Bitcoin’s credibility took another jump when a Senate committee gathered several government agencies together early in November to discuss how to regulate it, driving its price to a new high for the year during the day of that meeting. Another boost came from an unlikely place: the Federal Reserve. It issued a “Bitcoin Primer” which explained how the Bitcoin works, calling it “a remarkable conceptual and technical achievement…” As of Friday, the Bitcoin was trading at over $1,100 apiece. The price chart shows a nearly exponential explosion just since the first of November.
This is making a number of respected commentators nervous, including The Economist magazine’s technology department, which stated:
All currencies involve some measure of consensual hallucination, but Bitcoin, a virtual monetary system, involves more than most....
Rather than relying on confidence in a central authority, it depends instead on a distributed system of trust.
With the explosive growth in the Bitcoin’s credibility and price have come some serious problems, according to The Economist, including the fact that the system isn't nearly as secure or anonymous as has been touted, the amount of computing power that is required to create new Bitcoins has also grown exponentially, and its maintenance demands are threatening its continued viability.
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