Intro to Bitcoin: The Ideal Currency for the Elite

Bitcoin is the first of a multitude of abstract, virtual currencies, also known as cryptocurrencies. Different online brokers and trading platforms parcel out Bitcoin to investors. Bitcoin is then stored in Bitcoin wallets: devices and online locations used to send and receive bitcoin. These wallets store a user’s unique piece of data, a private key, to sign transactions. All approved transactions are listed on a public ledger called a blockchain”. The Bitcoin network relies on these blockchains to keep a complete record of transactions”, but it also acts as a prevention method from hacking. “Transactions are confirmed within 10-20 minutes, through a process called mining”. Miners are paid in newly created Bitcoin for their efforts.”(1) “Miners bundle large collections of transactions together into blocks by completing a cryptographic calculation that’s extremely hard to generate but very easy to verify. The first miner to solve the next block broadcasts it to the network and if proven correct is added to the blockchain”(2). This method of gaining Bitcoin doesn’t require a formal transaction but is still quite costly.

Multiple factors control the value of Bitcoin. Scarcity plays a major role in the increase of Bitcoin’s value over the past decade. As miners acquire Bitcoin from the the limited supply, 21 million Bitcoin, Bitcoin becomes increasingly valuable. Bitcoin’s value is uniquely consumer-driven. The subjective theory of value best explains the value of Bitcoin. Because it isn’t backed up by any stake in a company or a product, the value of Bitcoin varies. The subjective theory claims that “the value of any object is determined by the individual who buys or sells it”(5). Bitcoin is only worth as much as the consumer is willing to pay. “In late 2009, a Bitcoin was worth around five cents. Today, it fluctuates between two and three thousand dollars”(3). The wealthy class is the main consumer that controls the market on Bitcoin. “40 percent of the Bitcoin market is owned by 1,000 people.” (4).

Because people willing to pay absurd amounts of money rule a majority of the market, the value of Bitcoin is quite high. Many members of the wealthy class decided Bitcoin was a worthy investment due to the riskier, secretive, unregulated, and decentralized nature of bitcoin. Bitcoin was relatively easy to buy and collect at the beginning due to easier cryptographic calculations and cheaper rates, but wealthy investors bought so much Bitcoin early on, that it has become progressively difficult for those with less disposable income to invest. 

So much of Bitcoin comes into the market from mining, which, over time, has become solely available to those with immense wealth and resources. Mining is extremely expensive. “When Bitcoin was first launched it was possible to almost instantaneously mine a coin using even a basic computer. Now it requires rooms full of powerful equipment, often high-end graphics cards that are adept at crunching through the calculations, which when combined with a volatile Bitcoin price can sometimes make mining more expensive than it is worth” (2). Furthermore, to stretch out the remaining supply of bitcoin, the code institutes Bitcoin reward halving every 4 years and adjusts the difficulty of the hashing problems. Bitcoin reward halving decreases the profitability and accessibility of mining bitcoin, especially on a small scale. If regular citizens were the main customer, then Bitcoin would be worth much less. People wouldn’t be able to buy in at the current price or afford to mine any, so the database would have to lower the prices and adjust the difficulty of the hashing problems.