Bitcoins have been much in the news lately. Against the background of renewed concerns about the integrity of the euro zone and the imposition of capital controls in Cyprus, the price of a bitcoin has tripled over the last month and reached more than $141 for 1 BTC. Are we witnessing the spontaneous emergence of an alternative virtual medium of exchange, as some would put it? This article offers an answer to this question by considering three aspects of the economy of bitcoins: their production process, their demand factors, and their capacity to compete with physical media of exchange.
The Production of Bitcoins
A bitcoin is a unit of a nonmaterial virtual currency, also called crypto-currency, by the same name. They are stored in anonymous “electronic wallets,” described by a series of about 33 letters and numbers. Bitcoins can travel from a wallet to a wallet, by means of an online peer-to-peer networktransaction. Any inter-wallet transfer is registered in the code of the bitcoin, so that the record of its entire transaction history clearly identifies its owner at any single moment, thereby preventing potential ownership conflicts. Bitcoins can be further divided into increments as small as one 100 millionth of a bitcoin. The current outstanding volume of bitcoins is above 10 million and is projected to reach 21 million in the year 2140.
A bitcoin is a unit of a nonmaterial virtual currency, also called crypto-currency, by the same name. They are stored in anonymous “electronic wallets,” described by a series of about 33 letters and numbers. Bitcoins can travel from a wallet to a wallet, by means of an online peer-to-peer networktransaction. Any inter-wallet transfer is registered in the code of the bitcoin, so that the record of its entire transaction history clearly identifies its owner at any single moment, thereby preventing potential ownership conflicts. Bitcoins can be further divided into increments as small as one 100 millionth of a bitcoin. The current outstanding volume of bitcoins is above 10 million and is projected to reach 21 million in the year 2140.
