Bitcoin and the Blockchain
By Olga Kharif and Carter Dougherty at Bloomberg
Bitcoins introduced a lot of people to the idea of computerized money. Now the digital currency, which set off a minor frenzy when it broke into public consciousness in 2013, is trying to grow up. Utopian fantasies have subsided as consumers remain unconvinced of the value of swapping their cash for bitcoins, or using them to buy goods and services or for transferring money. Sharp price swings have shown that owning bitcoins isn’t a sure path to riches — the currency lost half its value over the course of 2014, a worse showing than the ruble. But the currency’s underlying technology, known as the blockchain, is a different story. In its simplest form, the blockchain is a public online ledger in which transactions are recorded and verified. Silicon Valley startups and established Wall Street firms are all exploring whether such a decentralized system could become a launching pad for major changes in finance and other industries.
The Situation
Startups with names such as Chain.com, Ethereum and Colu are trying to use the blockchain for everything from voting to selling merchandise. They think of the virtual currency as just the first of many applications of the blockchain, and one that won’t be that widely used. Developers are currently split over proposed software changes that could either make bitcoins more useful or lead to a slew of competing versions. There’s also uncertainty surrounding how bitcoin-related businesses will be regulated. The U.S. Internal Revenue Service ruled that bitcoins would be treated as property, not currency. In September, the Commodity Futures Trading Commission said that bitcoin is a commodity, just like crude oil or wheat. Meanwhile, arrests for Ponzi schemes using bitcoins and mysterious spikes and drops in the currency’s value show that it has yet to overcome an early reputation as a tool for selling drugs and laundering money.
