Bitcoin may be the currency of the future. Or it may be a giant speculative bubble getting ready to burst. Certainly it’s been volatile, with the price going from around $1000 at the beginning of 2017 to just under $20,000 in December before losing more than half its value in the next few weeks. By early February the price was down to around $6000 before rebounding to over $11,000 on February 19. With that kind of volatility, investors are likely in for a wild ride.
The actual value of a bitcoin at any given time is hard to track because it is unregulated except by participants and there is no single site or exchange that sets the bitcoin price.
I’m curious to see what will ultimately happens with bitcoin as governments and financial institutions come to terms with it and other virtual currencies. In the meantime, the need to talk about this digital money and the underlying technology that supports it has added some new words to the financial world’s vocabulary.
New Language for New Ideas
Among my favorites is cryptocurrency, which Investopedia defines as “a digital or virtual currency that uses cryptography for security.” So if you take the “crypto,” from cryptography, which is the “enciphering and deciphering of messages in secret code” and add “currency,” meaning money, we get really a secretly coded money.
A word you don’t hear a lot yet, but may if we ever get to the point where people are paying for their coffee at Starbucks with bitcoin is “satoshi.” It’s like the penny is to the dollar and represents the smallest unit into which a bitcoin can be divided (0.00000001BTC). The word is derived from the pseudonym, Satoshi Nakamoto, used by the mysterious developer of bitcoin.
And then built off of cryptocurrency is “cryptocalypse,” which was used to describe the precipitous drop in bitcoin’s price earlier this year. That’s a vividly descriptive word that aptly describes what happened, but it’s not the original meaning of the term. Apparently it first appeared on Twitter in 2011 and was used to describe what happens when security encryption is hacked.
Another word I really like is blockchain, which in my mind calls up images of blocks of data chained together. And in essence that’s what it is—an open-source, digitally-distributed ledger that is used to record transactions in “blocks” which contain a timestamp and transaction data. It’s like a spreadsheet that exists simultaneously on thousands of computers and is updated with new data every ten minutes. Once the data is recorded, that block cannot be altered retroactively without altering all the other blocks in the chain, virtually eliminating the possibility of accounting irregularities.
There Are More of Them Than You Think
Another interesting development that has come out of the cryptocurrency world is the launch of what are being called ICOs, or initial coin offerings. When I first came across that it seemed pretty far-fetched, but then I found out that there are more than 1,500 cryptocurrencies or altcoins (another great word) in existence.
Many of these post-bitcoin offerings have great names including Ethereum, Golem, MOnero, Ripple, Dash, and, yocoin, but that doesn’t mean they’re necessarily a viable place to put your real money, your US dollars.
Recently on Twitter, Vitalik Buterin, founder of Ethereum, the number two cryptocurrency after Bitcoin warned that “…cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time.”
That would be another cryptocalypse. And no one wants to see that.