How seriously should Bitcoins be taken?
Samantha McPherson, October 2013
I. Introduction
In this paper, I will introduce an emerging currency called Bitcoin and discuss to what
extent it should be taken seriously as a currency. I will begin by giving a simplified
overview of what Bitcoins are. After that, I will discuss major concerns surrounding
Bitcoins, as well as who is raising the concerns. Finally, I will highlight the most notable
trends and news surrounding Bitcoins.
II. Findings
What are Bitcoins?
Bitcoins are a peer-to-peer, decentralized, cryptographic, digital currency created by
Satoshi Nakamoto in 20081. Nakamoto created open source software where people,
referred to as ‘Bitcoin Miners’, use computers to solve complex algorithms to ‘mine’
blocks of bitcoins. The metaphor can be somewhat misleading in that there exists no
intrinsic value of Bitcoins — it is a fiduciary currency and not a commodity currency2.
Bitcoins do not exist in physical form, but. The more bitcoins that are mined, the harder
the algorithms become to solve, and the longer it takes for the same amount to be
mined. This explanation is simplified and by no means exhaustive3. At the time of print, 1
BTC= 791.5500 USD4 and there are over 80 active exchange markets for converting
various existing currencies into Bitcoins and vice-versa5.
1 Nakamoto (2008)
2 Velde (2013)
3 For a more comprehensive explanation of Bitcoins, I suggest reading Velde (2013)
4 mtgoxUSD exchange rate
5 http://bitcoincharts.com/markets/list/
MCPHERSON – 1
What are the major concerns surrounding Bitcoins and who is concerned?
There are four major concerns surrounding Bitcoins:
1) Stability, including worries of hyperdeflation and its artificial scarcity;
2) Regulation;
3) the appeal of the ‘anonymous’ nature of Bitcoins, particularly for people
engaging in nefarious activities; and
4) Security.
Government officials and politicians have had a growing interest in Bitcoins in the recent
months. For example, the Senate Committee on Banking, Housing, and Urban Affairs
held a hearing on virtual currencies last week where they discussed Bitcoins. In an
interview with Bloomberg, United States Senator Ron Johnson said that the US
Congress would not be taking any action regarding Bitcoins yet. The lack of
understanding Bitcoins, how they work and relate to the more traditional currencies like
the USD or Euro, has caused many governments to try and gain understanding so they
can take action if necessary.
Investors and Speculators hold a vested interest in the stability and regulation of
