Bitcoin attracting entrepreneurial investors globally
A new currency has arrived on the market and is attracting attention from investors and entrepreneurs. Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency. Other currencies are regulated by governments’ central banks.
Bitcoins are traded in peer-to-peer transactions that take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.
The blockchain is a public ledger that records bitcoin transactions. It does this without any trusted central authority or government. The blockchain is maintained by a network of communicating nodes running bitcoin software.
Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009. Bitcoins can be exchanged for other currencies, products and services.
There are a number of these cryptocurrencies, but Bitcoin currently is the standard. It now is operating much like the U.S. dollar in public currency markets, but in the crypto realm. Recently, other currencies, such as Litecoin, Ethereum, Zcash, Dash, Ripple and Monero, have hit the market. One expert anticipates an explosion of different cryptocurrencies in the near future. There are three ATMs in the Cleveland area that dispense bitcoins.
Investors are buying and selling bitcoins in the hopes of making money in their change in value. Two Cleveland-based entrepreneurs have opened a mutual fund type instrument that is investing in cryptocurrencies. Their Grasshopper Fund has a minimum initial investment of $250,000. Critics say investing in the new currency is very risky.
Bitcoin gained 1,390 percent in 2017 and was up as much as 1,935 percent when it hit a record high of $19,666 in mid-December. It then plummeted to a low of $5,950 in January. By mid-February, it had stabilized around $8,400.
“There was an interesting case recently where someone lost a multi-million dollar investment in Bitcoin because he lost his password,” said Tom Debbink, professor of management at Tiffin University. “Apparently, there wasn’t any option for recovery … oops!”
Another Cleveland area business named Decent is building blockchains that focus on digital currencies and related technologies. They are developing the technical side of the cryptocurrency industry. Several sources say the technology behind these cryptocurrencies is the real story and much more significant in the long run.
The decentralized blockchain system has advantages in that it would be very difficult for a hacker to connect transactions for an entity and different encryption methods would make it hard to crack the transaction even if they were compromised, according to George Miller, assistant professor of computer information systems at Tiffin University.
“The biggest disadvantage is our financial institutions would have to embrace the idea, and it is not happening at this point in time. Thus, if you as a business adopted it, it may or may not become a standard or even take off in the industry,” Miller said.
The part of this I do not understand and have asked about is who decided there was a need for another currency. As a marketing guy, I know any product has to create a benefit to fulfill an existing need or want. I am not sure what bitcoins can do that the dollar, peso or euro does not do.
One of the original uses for bitcoins was international transactions. When it first appeared on the market, it was a much less expensive way to make bank transfers. It was low-cost and almost instantaneous. For merchants, transactions were irreversible, removing the threat of expensive charge-backs.
Some have suggested bitcoin increasingly is being used for money laundering. Others disagree, saying bitcoin is not a good means for money laundering, extortion or terrorism financing, as it is more transparent and traceable than other currencies.
Perry Haan is professor of marketing and entrepreneurship at Tiffin University. He can be reached at (419) 618-2867.