THE RISE OF THE DIGITAL ECONOMY
We live in a world where the demiurgical technology trend - that is creating value apparently from nothing - is completely capturing our attention: from 3D printing to cloud computing and digital currencies, we are starting to generate resources to solve problems. While 3D printing relates to the physical side of things, cloud computing has radically improved the way we process data and information online. Due to its focus on creating easy, secure, open, fair transactions, the appearance of Bitcoin (BTC) in 2009 has completely changed the way people view online transactions and, for that matter, the concept of currency itself. Bitcoin is a digital currency based on an open-source peer to peer software protocol that is independent of any central authority. Bitcoin relies on cryptography to secure and validate transactions, and is thus often referred to as a “cryptocurrency”.
Now, after millions of individuals have started to use Bitcoins, more and more businesses are accepting them as payment. Only last week, PayPal made a major announcement that it was partnering with Bitcoin processors BitPay, Coinbase and GoCoin to allow its merchants to accept the cryptocurrency for digital goods like online games and music downloads. Previously, businesses like restaurants, apartments, law firms, and popular online services such as WordPress and Reddit had started accepting Bitcoins. International figures such as Al Gore and Bill Gates have spoken widely about the phenomenon, while the 2009 invention spurred the creation of more than 500 other virtual currencies, among them Amazon coins.
Creation may seem easy, but it is the management of the system that develops afterwards that is the real challenge. Bitcoin is based on public open data, so the BIME team decided to create a dashboard to offer a general perspective on the digital currency world. This dashboard will be useful for historians as well as economists - and, of course, for Bitcoin and other digital currency users.
HOW IT WORKS
Bitcoin is a digital currency that is both rare and perceived to be valuable. But how can something digital be rare and valuable? Well, the anonymous developer(s) made it so transactions have specific transaction addresses (like any bank) and when run through a mathematical algorithm (encrypted) it creates a specific pattern. Each transaction is verified (decrypted) using the computing power of internet users in a peer-to-peer network called Bitcoin miners. These individuals are then rewarded with newly generated Bitcoins, thus money is created out of thin air. Bitcoins are created at a decreasing and predictable rate until this will halt completely with a total of 21 million Bitcoins in existence (which will happen approximately in 2140!).
Even though the mathematics behind the Bitcoin system is quite advanced, the system is pretty simple: you should look at Bitcoins the same way you look at pounds, euros, and dollars. One can exchange currency, buy, sell and trade with it directly. The currency rate fluctuates just like any other. However, without any central authority, there are no banking fees, accounts can’t be frozen, there’s no national borders or any other arbitrary restrictions.
With fingers being pointed at banks after the financial crisis, and Edward Snowden’s NSA revelations, there is more acceptance for such a currency. If everyone has access to a global market, great ideas can flourish and this is considered by many to be the future of currency.
Check out our Digital Economy Dashboard.
With this BIME interactive dashboard, you can see trends in how this digital currency has evolved and fluctuated over the last year. End of 2013, Bitcoin reached a peak, with 1 BTC being worth over 1100 USD! Just like any other currency, if you were trading your bitcoins with USD at that time, you would have made an interesting profit. This price volatility impacts the total market capital of Bitcoin, and today it represents over $7.5 billion.
Although Bitcoins may be criticized and debunked by some, there’s no doubt about it: there are more and more Bitcoin addresses and Bitcoin transactions every day. In a very short period, there’s been over 13 million Bitcoins that have been mined to this day. It’s not just the hype that’s allowing this constant increase, but the ideology that Bitcoin users want to believe in. Bitcoin miners initially helped to maintain the peer to peer network because they were rewarded in Bitcoins, but today as the difficulty intensifies, it isn’t a profitable “hobby” anymore. They now help because of their conviction of a sustainable alternative, the digital future of currencies.
Check out our Digital Economy Dashboard.
The source for the data is Quandl.