Level 4 Reading 6B

Reading 6B

THE RISE OF VIRTUAL MONEY lt doesn't exist in any physical form, yet is increasingly used by people worldwide. ls virtual currency the money of the future? What Is a Virtual Currency? According to the European Banking Authority, a virtual currency is "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted [as] a means of payment and can be transferred, stored, or traded electronically." There are many types of virtual currency, but the best known is probably Bitcoin. In online articles, or in newspapers or magazines, you may have seen pictures of gold or silver coins marked with the Bitcoin symbol(₿ ) However—since Bitcoins exist only as digital constructs—these are merely representations. Bitcoin is a type of digital money known as a "cryptocurrency" ; that is, it uses cryptography—secure coding—to verify ownership of the money. The money can be sent electronically from one user to another anywhere in the world. Unlike traditional currencies, Bitcoin is not controlled by a central bank or by a government agency. And unlike credit cards, the Bitcoin network is not run by a company. There is no middleman between the parties that are transferring money. It is operated by a global network of computers called a blockchain network, which records every Bitcoin transaction in the world. How Did Bitcoin Begin? The first reference to Bitcoin appeared in 2008, in a paper by a writer supposedly named Satoshi Nakamoto. However, the name turned out to be a pseudonym for a person or group who preferred to remain anonymous. A year later, Bitcoin was released as open-source software.

Bitcoin was not the first attempt at a cryptocurrency; others had existed in one form or another for nearly 50 years, but without much success. In a short space of time, though, Bitcoin became the first cryptocurrency to be widely traded internationally. The first Bitcoins were mined in January 2009; within 200 days, one million coins had been mined. By 2019, this had risen to over 17 million Bitcoins—worth a total of U.S. $65 billion— and more than 300,000 new transactions were taking place every day. In its early days, Bitcoin was known for its link with illegal drugs, such as those bought and sold on Silk Road, an online black market set up in 2011. Silk Road connected customers and sellers on the Internet using a network that concealed a users location and identity—and it used Bitcoin for payments. Silk Road was shut down by the FBI in 2013. According to some experts, the shutdown gave Bitcoin a chance to gain some much-needed legitimacy. BitPay CEO Stephen Pair insisted that Silk Road's association would not prove fatal to Bitcoin. He said that the shutdown "shows that just because you use Bitcoin doesn't mean you can evade law enforcement." How Does Bitcoin Work? Each Bitcoin can be divided out to eight decimal places. That means you can send someone a minimum of 0.00000001 Bitcoins. This smallest fraction of a Bitcoin—the penny of the Bitcoin world—is called a "Satoshi." Like gold or other precious metals used as money, Bitcoins are scarce. But their scarcity is not natural or accidental. New Bitcoins are added only by being "mined." Computer users on the blockchain network race to solve increasingly complicated mathematical problems. The first to have a verified solution receives a payment. It's like the high-tech equivalent of a gold rush. The mined Bitcoin can then be traded using special computer software. A useful analogy: Think of the blockchain network as an engine. Engines can be used to power all types of vehicles: cars, boats, aircraft. Bitcoin is a vehicle that uses that engine. Because it was the first major virtual currency to use blockchain, you could think of Bitcoin as an early model vehicle, like a Model T Ford. More sophisticated uses of this engine may occur in the future. What Are the Benefits of Using a Virtual Currency Like Bitcoin? In most cases, financial transactions involve exchange fees, taxes, and payment delays to guard against fraud. Virtual transactions, however, are speedy and cheap—and are settled immediately. And unlike a credit card exchange, where credit card numbers and security information are handed over completely for any transaction, a Bitcoin transfer is authorized only to pay a specific amount. Virtual currencies also make it possible to make a digital payment without needing PayPal or a credit card. This is particularly useful in many parts of Africa, Latin America, and South Asia. Immigrants to developed countries may find it a convenient way to send funds back home to their families. Bitcoin supporter Jonathan Mohan says, "The vast majority of [people on] the planet don't even own a bank account... Just as in Africa, [people] went directly to cell phones. In these developing nations, you're not going to see them start getting bank accounts. You're going to see them just going straight to Bitcoins." What Are the Drawbacks of Bitcoin? The most obvious drawback is a lack of stability in the value of the currency. Bitcoin's independence makes it more stable in principle than traditional currencies. In reality, though, its value has fluctuated wildly over the time it has been in existence. In 2012, the price of a Bitcoin was about U.S. $12; by December 2015, it had reached U.S. $400. Two years later, it reached a peak of almost U.S. $20,000, but then lost almost 80 percent of that value within a year. Those are some wild swings. So it is worth thinking twice before putting all or a substantial amount of your assets into a virtual currency like Bitcoin. The rule of investing in virtual currency is the same as investing in stocks: Never invest more than you can afford to lose.

♪

♪