Although Bitcoin is gaining widespread popularity, some St. John’s students said they do not understand how cryptocurrencies work.
Sean Solorzano, a senior, said, “I don’t really know what it is, but I know that it could probably make someone a good amount of money.”
Bitcoin is a peer-to-peer system, which means transactions occur between users directly, without sending or receiving information from servers (the most common form of internet communication). All transactions of Bitcoin are recorded in a public ledger, or list of transactions, called the blockchain.
The blockchain is how Bitcoin transactions are verified. All nodes, or computers running Bitcoin software, have updated blockchain information so no central authority, like a bank or government, has to ensure that no one is double spending, that no Bitcoin is lost and no funds are stolen.
Bitcoin was created in 2008 and released in 2009 as an open source project, created by the mysterious Satoshi Nakamoto, whose true identity is still unknown, due to Bitcoin’s anonymous nature.
Digital currencies are not new; services like PayPal and Venmo allow users to send digital funds to others and the transfer of fiat currencies by governments and large banks is also primarily digital.
Bitcoin and other cryptocurrencies like Ether and Litecoin function similarly, however it is decentralized. This means that it has no owner, no authority to control or regulate it and no one can interfere with its transmittal.
Until recently, Bitcoin has been treated as a type of stock. The price fluctuates so wildly that already there exists “Bitcoin millionaires” who have made their fortune by placing bets early on in the young history of Bitcoin.
On Oct. 20, Bitcoin hit $6,000, and by Nov. 29 Bitcoin hit a record high of $10,000. The said downside to Bitcoin’s unpredictability is that there is always a possibility that it could drop all the way to zero at a moment’s notice.
Critics, like traditional investors and banks/financial institutions, argue that the anonymity of Bitcoin will cause more illegal activity because although transactions are public, users remain completely anonymous. Other critics claim that Bitcoin is an economic bubble, or an asset that is priced much higher than its intrinsic value, and often cite “tulip mania,” a reference to the Dutch Golden Age when tulip bulbs gained value drastically and then crashed.
However, some advocates believe that Bitcoin will eventually replace fiat currencies as it is more secure, unable to be stolen or tampered with and has a public list of transactions that keeps all parties honest.
As a result of hyperinflation, Venezuelan residents have started to mine Bitcoin, essentially search for valid combinations of cryptographic functions to create a new block in the blockchain and receive bitcoin in exchange for processing power.
Bitcoin can also be useful in developing countries. Transferring Bitcoin is much cheaper than bank transfers, and storing bitcoin by depositing local fiat currencies in Bitcoin ATMs is much safer than storing physical cash that can be stolen by others, taken by a tyrannical government or even lost.
As the price of Bitcoin continues to rise, many parents and tech-savvy students have started investing in Bitcoin as a way to avoid or pay off college debt.
Although this investment may not be the best way to secure a financial future, this method of storing value could revolutionize the way that banks function overall, and the current financial problems that students face could be bypassed altogether.
Lauren Candela, a senior at St. John’s, said, “If I’m already in debt, I’m not going to take the risk of losing an investment, so I wouldn’t invest in Bitcoin or anything else to pay off a student loan debt.”
Senior David Moyer said, “Investing in Bitcoin should be met with a great deal of caution due to its volatile nature because Bitcoin right now is not traded like anything else we’ve seen before; it’s not traded like a stock, it’s not traded like a currency, but with that there is also a lot of upsides as well.”
Especially in fluctuating markets such as this one, professionals say that people should never invest more than they are willing to lose.