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Ann Arbor, Michigan 48105
By: Ed Pear and Natalie Lennon
Bitcoin was created in August of 2008 by a programmer or team of programmers using the pseudonym Satoshi Nakamoto, who outlined the technology in a paper and registered a new domain, Bitcoin.org. To this day, no one knows who Satoshi Nakamoto really is. The stated goal was to create “a new electronic cash system" that was "completely decentralized with no server or central authority."
Bitcoin was the first example of cryptocurrency. Cryptocurrencies are an entirely digital currency, and bitcoins aren’t printed but are produced by computers and held electronically. Bitcoin allows for a minimal amount or even no trust between the parties in the transaction. Bitcoin stores transactions through a blockchain, which is a specific type of database that stores every transaction ever made. Bitcoin calls the blockchain a “shared public ledger.”
Bitcoin is open-source; its design is public; nobody owns or controls bitcoin and everyone can take part. Bitcoin is legal and can be spent on anything. Many major companies accept bitcoin, including PayPal, Starbucks, and Etsy.
Bitcoin has a volatile value. Bitcoin volatility is driven in large part by varying perceptions of the value of the cryptocurrency. Bitcoin.org gives this warning, “The price of a bitcoin can unpredictably increase or decrease over a short time due to its young economy, novel nature, and sometimes illiquid markets. Consequently, keeping your savings with Bitcoin is not recommended at this point.”
Tesla billionaire Elon Musk helped Bitcoin’s stock price reach an all-time high. Tesla revealed in February of 2021 that it bought $1.5 billion worth of bitcoin. However, Musk changed his stance, and in May of 2021, Tesla “suspended vehicle purchases using bitcoin,” out of concern over “rapidly increasing use of fossil fuels for bitcoin mining.” Recently, Musk decided to back one of Bitcoin’s rivals, Dogecoin. Dogecoin was created as a funny, low-stakes Bitcoin alternative. Dogecoin’s stock price jumped after Musk took to Twitter to show support for the company in May of 2021.
One of the initial attractions of bitcoin was that it seemed anonymous. However, the United States government has announced in recent weeks that ransomware, which can involve bitcoin, is an urgent national security threat. Ransomware occurs when an actor locks a victim’s data with encryption until a ransom demand is met for their release, typically with digital currency like bitcoin. Bitcoin accounts for approximately 98% of ransomware payments. The most recent ransomware attacks stopped gasoline and jet fuel from flowing up the East coast and stopped beef and pork production from a leading supplier. Companies have been slow to adapt defensive infrastructure for cyberattacks because the threat seemed distant, or the cost seemed too high.
Ransomware attacks affect bitcoin’s price. Colonial Pipeline, a gas company, was hit with a ransomware attack in May that froze their business records, and the company took the added step of shutting down its pipeline because it couldn’t access its billing systems. The effect on consumers was huge as gas prices surged. Bitcoin’s price slipped as June began, likely related to concerns over the security of the cryptocurrency after U.S. officials managed to recover most of the ransom paid to the Colonial hackers.
Bitcoin is a relatively new type of currency, with many potential but unproven applications in the future. It is under increased scrutiny from regulators, and this is likely to continue as Bitcoin grows.
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