With news this morning of another Bitcoin crash, and recent bans of the currency by China and then Russia, we thought it was high time we took a closer look at the nascent cryptocurrency that has everyone up in (mostly confused) arms.Why is it valuable?Will it ever be sensible to invest in them?We’ll answer those questions, and more.While Bitcoin started as a response to the financial crisis and an attempt to circumvent the shortcomings of our global financial system, it has quickly turned into a growing economic force and a unique testbed for new ideas about money, value, and ways of buying and selling.While Bitcoin news is often in the headlines, the system itself — loosely called a digital currency or cryptocurrency — is still not widely understood.More importantly to most of us, it hasn’t been clear when and how we might use Bitcoins — or one of its imitators (Litecoin, Dogecoin, etc.)— or whether Bitcoins have a long-term future at all.While Bitcoin defies easy categorization, we can break down its functionality and analyze how it compares to traditional currencies, commodities, and collectibles.

Currencies serve multiple functions in society, but primarily they are used as a medium of exchange and as a store of value.(They are also used as a unit of account, but for simplicity we’ll leave that aside in this case).In principle Bitcoin can fulfill both of those roles for its growing community.As long as businesses choose to accept Bitcoins in payment and there are exchanges to turn them into other currencies, Bitcoins will survive as a medium of exchange.Currently Bitcoin acceptance continues to increase, although it is still not trivial to get started in the world of Bitcoins, and transactions take nearly an hour to settle.More sobering long term is the lack of any underlying foundation for the acceptance of Bitcoins.The US dollar, for example, is by law accepted as a means for settlement of debts in the US — especially money owed to the government.That may not sound too important, but every business needs to collect and pay various taxes, as do most individuals.That helps firmly root us in a dollar-based economy.With Bitcoin, if everyone chose to stop accepting them tomorrow morning — perhaps because they lost faith or thought that the Bitcoin system had been co-opted or corrupted — then the remaining Bitcoins would have no worth except as collectors’ items.

Bitcoin would be like the currency printed by the Confederacy in the Civil War or by the government of Zimbabwe.huong dan dao bitcoinFor now that seems highly unlikely, but long-term investors think in decades, and Bitcoin has only been around for a few years.Until Bitcoin, traditional currencies are not directly mined.ethereum april 26Materials that are mined and sold for later use or as collectibles are called commodities, and their value fluctuates with demand and supply.stripe bitcoin blogSome of them, like gold, have become popular enough as a way of storing value or hedging currency risk that they act almost like a currency, but except in rare instances like the California gold rush, modern commodities aren’t spent directly — instead they are first converted back into a national currency.bitcoin is booming

Intriguingly, early US coins contained an equal amount of gold or silver to their face value, making them a much closer analogy to the Bitcoin model than today’s “fiat” currencies that rely on law and trust for their value.ti-84 bitcoinIt’s beyond the scope of this article to go into the technical or financial details of Bitcoin mining, but suffice it to say the easy money has been made.As a value store, Bitcoin suffers from its roots as a cyber-commodity.bitcoin ragIts value fluctuates wildly up and down with the latest tech news or scare.tesla bitcoin cnnUnlike a typical nation-backed currency, no one is actively managing the value of Bitcoins.btc graph bitcoinThe result is a market driven by speculation more than by savings.hourly invest bitcoin

While, like gold or oil, speculative ups and downs may make Bitcoins a legitimate part of an investment portfolio, it doesn’t make it a safe place to store your savings.Next page: The rise of cryptocurrencies and the future of Bitcoin…We owe many of the innovations that we use every day -- from our favorite longstanding websites to the latest mobile applications -- to the existence of underlying highly technical protocols.Endusers don't need to understand these any more than drivers need to understand the workings of a car engine.Policy makers, however, need to understand the importance of protocols for enabling distributed permission-less innovation -- that is, innovation by many individuals and startups.For instance, the hypertext transport protocol (http) is what lets a browser talk to a web server -- as long as the server implements the protocol it can deliver innovative content or services to any browser.HTTP itself builds on many other lower level protocols, such as DNS and TCP/IP.

Historically, protocols have emerged from either research projects or from individuals / small groups simply throwing something out that sticks.In the debate about bitcoin it is critical to understand that bitcoin has the potential to be such a protocol that enables a lot of new innovation to take place.At the heart of bitcoin is a fundamental innovation: a distributed public ledger.A ledger in accounting is a book that you cannot edit once you have written in it.Instead, if you have made a mistake, the only way to fix it is to add another transaction to the ledger that undoes the error.As we know from accounting fraud, problems arise when people figure out ways to transact without recording it in the ledger or making ex post changes to the ledger (this is why Quickbooks isn't really an accounting system).The bitcoin ledger is the so-called blockchain which uses the fact that there are many copies of it that are broadly distributed combined with a fair bit of math to ensure that once a transaction has been recorded in the blockchain that transaction can not be changed after the fact.

There is no other widely used protocol in the world today that accomplishes this: with bitcoin anyone can make a statement (a transaction) and have this be recorded in a globally visible and fixed ledger.Why is this a big deal?Because as it turns out the transactions that can be recorded in the bitcoin ledger have a lot of expressive power built into them in the form of a scripting language.This allows for certain types of contracts to be built on top of bitcoin, such as deposits, escrows, all the way to distributed stock trading.For instance, there is a proposal for something called "colored coins" which allows additional data to be attached to a bitcoin that can then stay connected through all subsequent transactions.That data could represent, for example, shares in a company at which point the block chain becomes a fully distributed and public ledger of stock ownership (potentially replacing either physical certificates as still used by most startups or separate custody services).Because of the scripting language, the ledger is actually intelligent and once shares are represented that way it becomes possible to construct automated versions of derivatives contracts.