Did you know that there’s an entire economy based on virtual currency?
It's true - a growing number of people are buying and selling goods using money that only exists on the Internet!
Bitcoin is the most popular virtual currency, or cryptocurrency, with more than 5 million users. However, a competitor is on the rise— Ethereum, which allows users to make transactions by exchanging Ether. The total value of Ether (in dollars) has skyrocketed over the past few months, and many are predicting it will soon overtake Bitcoin.
Virtual Currency: How Does It Work?
Bitcoin was launched in 2009 by a mysterious person going by the name of Satoshi Nakamoto (we still don’t know who he/she is).
The big idea behind Bitcoin was to create an online currency that wasn’t controlled by any central authority (like a bank, or the Federal Reserve). Instead, Bitcoin is created, or “mined”, automatically.
Every time computers in the Bitcoin network execute a complex mathematical operation, more Bitcoin is generated. Since these operations are long and difficult, this ensures no person can rapidly keep creating more and more Bitcoin. In order to verify transactions, the Bitcoin community maintains a log of all exchanges between users occurring in the network. Users have to agree to updates on the log, which occur every 10 minutes.
Many companies, including Expedia and Microsoft, now accept Bitcoin as payment. In addition, Bitcoin can be exchanged for traditional currency, like dollars or rupees. And get this— one bitcoin is worth more than 2500 US Dollars!
Ether— The New Kid on the Block
While Bitcoin has revolutionized the way we think of currency, it suffers from many problems. It’s difficult to use, and it has enabled drug dealers and others to sell illegal goods. That’s why a new currency called Ether is challenging Bitcoin for virtual supremacy.
Ether has everything that Bitcoin does, but is easier to use and offers an additional benefit: programmers can use the thousands of computers on the Ethereum network to run large experiments and programs.
The total value of Ether right now is 35 billion dollars, not far from Bitcoin’s 43 billion dollars. As it continues to grow, virtual currency fans are waiting for what’s being called the “flippening” to occur— when Ether becomes more valuable than Bitcoin. Whichever currency ultimately wins out, it’s clear that the financial world is about to turn upside-down.
Could we be trading in virtual currency in the future?