Bitcoin has been one of the internet’s most implausible success stories.
Launched in 2009, its origins remain shrouded in mystery. Nobody has ever claimed credit (or taken the blame, depending on your perspective) for creating a decentralised cryptocurrency.
And if your eyes are already glazing over at the necessary use of industry jargon, that term simply describes a digital-only currency which isn’t attached to any bank or institution.
Prices may go down as well as up – and they certainly have.
In 2017, frenzied speculation saw Bitcoin values hit $19,000, before plummeting to less than $4,000 a year later.
On the 3rd of March this year, one Bitcoin was worth $52,200. Two days later, it was worth $46,500. As of March 19th, it’s worth almost $60,000.
Paying for goods and services becomes difficult if you’re reliant on a currency that can shed a tenth of its value in a weekend – or inflate by a third within a fortnight.
As for what happens to its value this weekend or the next, that’s in the hands of stock market speculators.
Because to understand what’s happening with Bitcoin, we firstly need to understand why this isn’t a currency in the conventional sense…
Getting a Bit silly
Traditional (fiat) currencies are supported by physical tokens whose values are underwritten by central banks.
If someone gives you a £10 note, you have a physical object with an ascribed value, which allows you to buy goods and services equivalent to that sum.
The real-world value of a tenner will naturally diminish over time, but it’s a predictable measure of value. Only devaluation or hyperinflation can cause rapid changes to its worth.
By contrast, Bitcoin is only worth what people want it to be worth.
And presently, that’s a lot.
Stock market speculators have bulk-bought Bitcoin in the same way they invest in (or bet against) stocks and shares.
Because Bitcoin is a cryptocurrency, there’s nothing tangible behind it. If investors decide it’s worth $50 or $50,000, nobody else will intervene or compensate for any losses incurred.
When speculators trigger runs on fiat currencies, central banks step in to prop up their value. Yet if there was a run on a cryptocurrency, it could collapse in value overnight.
Suddenly, anyone who’d spent $60,000 acquiring one Bitcoin would look rather silly – and have a huge hole in their finances.
I just don’t have the energy
Rampant stock market speculation and price volatility haven’t finished Bitcoin off yet.
Nor has its association with the less savoury side of the Dark Web, and nor has a series of forks (splitting into two competing factions) diminishing the purity of the original vision.
Nor have various high-profile thefts from the digital wallets used to store Bitcoin. And weirdly, nor has the fact you can’t really buy anything with it.
A few online retailers accept Bitcoin, but the vast majority of these are startups and niche businesses like web hosting companies, vape shops and VPN providers.
Ironically, its fate may be sealed by the growing climate emergency.
While existing coins can be traded freely, new ones are earned by directing computing resources to solving advanced mathematical problems – a process known as mining.
Vast arrays of computer processors are lashed together to undertake calculations which get progressively harder over time.
Mining is incredibly energy intensive, and jars badly with net zero targets and growing environmental awareness.
The University of Cambridge has estimated Bitcoin’s energy consumption at anywhere between 40 and 445 terawatt hours, which could be more than the UK’s energy consumption.
That’s clearly unsustainable for a speculator’s plaything with few real-world uses.
Indeed, the question of what’s happening with Bitcoin may soon be replaced by another question – whatever happened to Bitcoin?