Bitcoin burst onto the scene in the early 2010’s with a bizarre concept that spoke to a changing financial landscape. Powered by the seemingly uncrackable security known as “blockchain” programming, Bitcoin is “mined” by powerful computers solving complex math problems. Once a coin is “mined” by a computing rig strong enough to handle the math problems thrown at them, it can then be exchanged online with vendors or sold to investors for cash.
Discussions about the legality of the coin bring up interesting questions. In essence, Bitcoin is governed by a register of who owns coins, how many they own, and the history of exchanges of each unique coin. This decentralized form of currency is ideal for anonymous online transactions, and, according to authorities, has been used for illicit transactions like drug deals and arms trading. However, the mining and creation of the coins themselves is not illegal, as they represent only the value that is agreed upon by the cryptocurrency community.
Some regulators have begun questioning whether the entire endeavor is, in fact, a scam. At a glance, the Bitcoin market appears volatile. The coins fluctuate in value wildly, with caches of the coins occasionally being valued in the multi-millions of dollars. However, as the coin’s value skyrockets, investors sell out, resulting in massive swings of value that make the market appear unstable.
Moreover, since the coin is decentralized, investment firms that deal in cryptocurrency could theoretically operate lucrative scams by defrauding investors. Anyone who invests big in a crypto scheme and is subsequently burned by the investment firm might not have even recourse for damages, since the coins aren’t regulated by any government agencies. This poses some serious legal challenges to firms that handle crypto investment.
Early adopters in the Bitcoin community are adamant that the technology represents the future of financial transactions. They contend that, since the blockchain technology is impossible to crack, Bitcoin is completely watertight and fraud-proof. This, coupled with the open-ended nature of mining the coins from any sufficiently powerful computer, has been championed as a democratization of money.
However, this system is not without its detractors. Central banks around the world have proposed introducing their own cryptocurrency as a replacement for Bitcoin. Most regulators treat the coin like an investment instead of as a currency, and, in fact, very few transactions are actually conducted using just Bitcoin. The future of the currency depends on a number of factors, not the least of which being whether anyone actually uses the coins to buy things.