The myths, the hype, and
the true worth of bitcoins.
BY AVIV ZOHAR
I JUST WANT to report that I successfully traded 10,000
bitcoins for pizza,” wrote user laszlo on the Bitcoin
forums in May 2010—reporting on what has been
recognized as the first item in history to be purchased
with bitcoins.a By the end of 2013, about five years after
its initial launch, Bitcoin has exceeded everyone’s
expectations as its value rose beyond the $1,000 mark,
making laszlo’s spent bitcoins worth millions of
dollars. This meteoric rise in value has fueled many
stories in the popular press and has turned a group of
early enthusiasts into millionaires.
Stories of Bitcoin’s mysterious creator, Satoshi
Nakamoto, and of illegal markets hidden in the
darknet have added to the hype. But what is Bitcoin’s
innovation? Is the buzz surrounding the new cryptocurrency justified,
or will it turn out to be a modern tulip mania? To truly evaluate Bitcoin’s
novelty, its potential impact, and the
challenges it faces, we must look past
the hype and delve deeper into the details of the protocol.
Bitcoin, a peer-to-peer digital cryptocurrency launched in 2009, has been
slowly growing. Nakamoto described
the protocol in a white paper published
in late 200825 and released the software
as an open source project, which has
since been maintained by a large number of developers, most of them volunteers. Bitcoin’s network and its surrounding ecosystem have grown quite
substantially since its initial release.
Its dollar value, which most will admit
is largely based on speculation on its
future worth, has been extremely volatile. The currency had gone through
several hype-driven bubbles and subsequent devaluations, attaining higher
values each time.
Bitcoin’s promise is mainly a result of the combination of features it
bundles together: It is a purely digital currency allowing payments to be
sent almost instantly over the Internet
with extremely low fees. Like cash, it is
nearly anonymous, and transactions
are effectively irreversible once they
are committed. Bitcoin addresses (the
˽ Bitcoin’s operation relies on the Block
Chain—a distributed ledger of transactions
that is synchronized between all nodes.
The main challenge the protocol successfully
tackles is to ensure nodes agree on the
contents of this ledger.
˽ Going forward, the protocol faces challenges
in several domains: ensuring the privacy
of users, scaling up to high throughput,
maintaining mining decentralization,
more easily deploying updates to the core
protocol, increasing the robustness of its
overlay network, and structuring rewards
within the protocol to improve incentives.
˽ Continuous innovations are slowly
addressing these challenges. Along with
applications outside of the economic
domain, Bitcoin may yet fulfill its promise
to become a meaningful force in the global
money transmission market. a https://bitcointalk.org/index.php?topic=137.0