The world’s first bitcoin ATM arrived in a coffee house in Vancouver, Canada this week. The ATM allows customers to exchange cash for digital currency or to cash out their bitcoin wallets. Many are predicting that we may see the Robocoin ATM start popping up around the US soon.
WTF is a bitcoin?
The concept of a bitcoin was introduced in 2009 as a “Peer-to-Peer Electronic Cash System.” Unlike other currencies, bitcoins are decentralized and not regulated by any country or government. They’re also encrypted to prevent double-spending and create more “secure” transactions. Bitcoins are “mined” when powerful computers solve increasingly complex mathematical equations. Jerry Brito and Andrea Castillo explain in “Bitcoin: A Primer for Policymakers” :
This process of mining bitcoins will not continue forever.
Bitcoin was designed to mimick the extraction of gold or other
precious metals from the earth—only a limited, known number
of bitcoins can ever be mined. The arbitrary number chosen to
be the cap is 21 million bitcoins.
As of November 2013, there are 11, 889,905 bitcoins in circulation, according to Blockchain,info, a company that tracks bitcoins. Brito and Castillo predict that bitcoin mining will reach the 21 million bitcoin cap in 2140.
Bitcoin warns that the value of a bitcoin is a volatile, and because of the experimental nature of the currency, purchasers should understand that buying a bitcoin is equivalent to making an investment in a volatile market – your bitcoin worth could skyrocket, or you could end up losing everything. For this reason, bitcoin recommends that users purchase bitcoins only for specific purchases, rather than storing their entire life savings in the currency. If you’re looking for a shining example of bitcoin’s volatility, look no further than Christopher Koch – a Norwegian student who purchased $27 worth of bitcoins in 2009 while researching for his thesis on encryption. Koch put the bitcoin purchase out of mind until a year ago when he logged in to his bitcoin wallet to discover that his original $27 investment was worth $886,000. Today, his net worth in bitcoins in over $1 million.
Most recently, bitcoins have gained recognition for their use in The Silk Road online drug market. Bitcoin is the only accepted currency in the market because it allows for safer, more anonymous transactions than a credit card or other form of payment.
What does this mean for the future of currency?
The installation of the first bitcoin ATM in the physical world marks an interesting turning point in the currency’s development. Many businesses who accept bitcoins as a form of payment are e-commerce companies, but a map on bitcoin’s website shows the growing global popularity of the use of bitcoins in the “real world”.
Because bitcoin isn’t associated with any country or government, it will be interesting to see how the bitcoin trend pans out. In an age of increasing concerns over privacy and “Big Brother” government, will people who want to keep their cash flow safe from prying government eyes convert their dollars to bitcoins, despite the risks in volatility? It’s also important to note here that bitcoin informs users that despite being a decentralized currency, many governments require you to pay taxes on anything of value, including bitcoins. But if there’s not a way for the government to track bitcoin transactions, how can they enforce tax law effectively?
As more and more businesses accept bitcoins as a form of payment and as purchasing the currency becomes simpler and more accessible, it becomes a more viable payment option for the general public (those of us not trying to buy illicit objects online). Will people start opening their bitcoin wallets to pick up their morning coffee? (Some people already do!) And when the user-base inevitably increases with the amount of currency in circulation, what will happen to the value of a bitcoin? Even the bitcoin creators admit that, “Bitcoin is a new invention that is exploring ideas that have never been attempted before. As such, its future cannot be predicted by anyone.”