Show Me The Money!

“Show me the money!” We all know this famous quote from Jerry Maguire; the 1996 movie starring Tom Cruise. In 2009 a new type of currency, Bitcoin, was brought to the market. Since then, many people have been saying the same thing: “Show me the money!” The concept of this mysterious currency has actually been around since 1998 when Wei Dai first described it as a “crypto-currency.” Wei Dai suggested that this new form of money “…uses cryptography to control its creation and transactions, rather than a central authority.” [Bitcoin.org] You might be asking yourself, “What in the world is cryptography?” Cryptography is basically anything written in a secret code or cipher. Bitcoin uses cryptography to control its creation and transactions by using a cryptographic algorithm. This allows bitcoins to be “mined” like gold, but with high-end computers rather than pickaxes. Just like gold, there is only a limited number of bitcoins that were created: 21 million. Only half (11 million) of all bitcoins created have been “mined” up until April of 2013. [Wall Street Journal] The trick to the “mining” algorithm though is that the complexity of the algorithm increases with the number of bitcoins “mined.” What if you just want to buy bitcoins like you would gold or silver instead of “mining” it? Do not fear. There are several exchanges where bitcoins may be purchased such as: Mt.Gox, Coinbase, and CoinMKT just to name a few. What about market volatility and current exchange value? Just yesterday, Mt.Gox halted bitcoin withdrawals which caused the value per coin to drop from $766 USD to $619 USD; about a 20% drop. Russia has even outright banned the currency saying, “Bitcoin is a money substitute and cannot be used by citizens and legal entities.” The United States has not yet regulated the bitcoin, but knowing our current government, will likely do so. Some companies, such as Overstock.com and Tigerdirect have begun to accept bitcoin with much success. Tigerdirect did $250,000 worth of sales in the first 17 hours after accepting bitcoins. [MarketWatch] What does the future hold for bitcoin? As you can see, there are many factors that will affect its adoption as a currency including, but not limited to: regulation, acceptance by the market, and popularity among the general public. Ultimately, the market and regulation will decide the fate of this contemporary and mysterious currency more than any other factors.