From 2010, when bitcoin first began being traded, to its peak in 2021, the price of bitcoin rose by over 80 million percent. The idea of bitcoin was created in 2008 with the thought of introducing a decentralized currency as a way of sending money over the internet (Batey). Its initial goal was to provide people with a system of payment that was free of central control but has since grown in prevalence into not only a currency but also, what many consider to be, an investment. However, despite its good intentions, Bitcoin has failed to progress as a currency and as a sturdy investment. Bitcoin struggles with extremely high levels of volatility, high susceptibility to use in illegal transactions, and backlash from environmental concerns about its use.

One of the first currencies of the world was precious metals. Gold and silver were first used as a medium for exchange, and, because of their novelty, gold and silver were relatively stable and held a high value within society. When gold and silver became burdensome, they were replaced by a system of credit and fiat currency made of coins, bills, and receipts. Being backed by a government or trustable authority, fiat currencies are able to sustain a relatively stable value. Then, when physical coins and bills became burdensome, they were replaced by an online form of banking which made transactions safer, faster, and more convenient.

Today, many believe that currency’s next transformation will lead to the widespread use of cryptocurrencies, namely Bitcoin. Although cryptos have only spiked the interest of everyday people relatively recently, the first cryptocurrency, Bitcoin, was introduced in 2008. Its original purpose was to provide people with a decentralized currency, free from banks, governments, or other centralized power/regulations in hopes of freeing people financially from possibly corrupt or unstable economies (Sparkes). Bitcoin’s decentralized structure means that transactions using the currency are not hindered by bank or government policies. As a result, Bitcoin can be used in transactions across national borders without the need to switch currencies. Being free of centralized control, Bitcoin’s price is safe from things such as bank/government collapses, tariffs, and manipulation (Posner). Overall, these properties make Bitcoin an attractive means of exchange to everyone, especially those whose countries’ currencies may experience vast fluctuations and stability problems. 

Despite the many problems it addresses, Bitcoin falls short when it comes to protecting itself against dramatic and rapid changes in price. In other words, Bitcoin’s high volatility makes it an untrustworthy, and therefore an unreliable currency. Because of its nature as a decentralized and easily manipulated currency, Bitcoin is highly vulnerable to speculation, bubbles, and pump and dump schemes. The cryptocurrency stands on the edge between being an investment, similar to a stock, and being a currency. Similar to stocks, Bitcoin’s price fluctuates based on consumer sentiment towards the crypto. This can lead to rapid price increase, but also rapid decreases. However, unlike stocks, Bitcoin has no regulation from the government. This makes it an especially easy target for pump and dump schemes, which would normally be identified and stopped by a government. Currencies such as the Euro and US dollar are not immune to changes in value and inflation, but their rate of inflation and deflation is relatively slow and can be somewhat managed because they are controlled by a central authority. 

Bitcoin not only fails as a currency but also as an investment as well. A traditional investment has two benefits: it gives investors a chance at making a profit, but, more importantly, it helps boost commercial or financial ventures. Money that is invested into companies helps the company grow and benefits the overall economy as a whole, increasing productivity. However, money invested in Bitcoin stays stagnant. In other words, investments in Bitcoin do not help companies grow and don't increase the productivity of the market. Many look to Bitcoin in the hopes of getting high returns in a very short amount of time, unaware of its high volatility, which could potentially cause them to lose money, and of the fact that they’re supporting a system that has negative impacts on society. While it’s up to individual investors to determine what level of risk they’re willing to take, it should be noted that so far in 2022, the value of Bitcoin has decreased more than 60% (6/30/2022).

Because of its lack of surveillance and centralized authority, Bitcoin is susceptible to being used in illegal transactions and supporting ill-intentioned groups. In fact, some of the first major transactions used with bitcoin were those used in illegal activities (Batey). Because bitcoin isn’t regulated or overlooked by authority, it’s prone to becoming a ground for illegal transactions. Fiat currencies such as the US dollar and Euro can also be used in criminal activities, but, because they’re regulated and can be somewhat tracked, money that is used in crimes can be followed and linked back to abusers. However, with Bitcoin, transactions cannot be tracked down to specific individuals and criminals. Bitcoin also makes it easier for criminals to send money over national borders as a result of it being free from government regulation. Systems like Bitcoin can make it easier for groups such as terrorists to receive financial aid, furthering their ability to cause harm in society.

One surprising downside to the use of Bitcoin is the huge toll it has on the environment. Bitcoin is able to secure and verify transactions via a system of “miners.” “Mining” Bitcoin is the process of validating and recording transactions that occur through the cryptocurrency (HONG). Information that mining computer checks are then put through an algorithm, creating a string of digits and letters. This string acts as a proof of work, and the miner who first gets the string correct is rewarded. Such a system serves as a natural ground for competition. In essence, it’s similar to a race where the person who finishes first receives a prize. However, the problem with Bitcoin mining is that it requires lots of computing power, and therefore energy input. Even more problematic is that increased input of energy doesn’t necessarily mean a better yield. If there are more miners working to verify a transaction, the time it takes for that transaction to be verified increases. To combat this, Bitcoin makes it harder for miners to verify the transaction. This, of course, requires an increased input of energy. The reward miners get for completing a transaction is decreasing - meaning that miners are using more and more energy and rewarded with less and less money. In 2017, Bitcoin miners have rewarded 12.5 bitcoin per completed transaction. In 2020, they only received 6.25 bitcoin per transaction. Over the same period of time, Bitcoin energy usage went from ~9.5 to 70 TWh per year (Cho).

While the current state of Bitcoin is problematic to society, it is unfair to say that it will provide no benefit to our society in the future. Being relatively new, it should be assumed that Bitcoin will have areas that need improvement, which cannot be improved upon if the cryptocurrency is disregarded as fundamentally bad to society. The idea of Bitcoin - a decentralized currency that has the ability to allow people to be less financially dependent on government or bank policies - has great potential in the future, especially on a global scale where Bitcoin can serve as a stable intermediary currency in international transactions. Currently, the US dollar is the dominant currency used in international trade, giving the US overwhelming power and making other countries vulnerable to changes in US policies. However, a currency free of any government manipulation such as Bitcoin can help even the playing field in global trade and foster levels of economic growth that would have previously not been possible. 

Overall, Bitcoin has brought an influx of interest to the world of finance and investing. Cryptocurrency has helped many people realize the importance of investing and has encouraged them to further research more about finance. This newfound widespread interest has helped improve rates of financial literacy and introduce principles of finance across generations and many communities. Although Bitcoin is susceptible to extremely high levels of volatility, changes in its system can help stabilize the price of Bitcoin. Stabilizing the currency will also lower Bitcoin’s attractiveness as a “get rich quick” investment. Finally, as more and more renewable and cleaner sources of energy are developed, Bitcoin’s contribution to climate change and pollution will become smaller and smaller. Additionally, the system of mining that is used to support Bitcoin can be improved upon and made less energy-demanding. 

Bitcoin has brought a wide variety of challenges to our society, but, at the same time, it has also brought a lot of good and has high potential to develop into something that brings about many positive changes. Labeling Bitcoin as a scam or fad undermines its potential and lowers the chance of ideas and improvements being added to the cryptocurrency. Despite its many flaws, Bitcoin has the potential to transform into something that could bring a whole new system of currency to the world. 

Sources Cited:

#Author.fullName}. “What Is Bitcoin and How Does It Work?” New Scientist, www.newscientist.com/definition/bitcoin/#:%7E:text=Bitcoin%20was%20created%20as%20a,used%20just%20like%20traditional%20currencies. Accessed 30 June 2022.

Cho, Renee. “Bitcoin’s Impacts on Climate and the Environment.” State of the Planet, 16 Sept. 2021, news.climate.columbia.edu/2021/09/20/bitcoins-impacts-on-climate-and-the-environment.

“How Does Bitcoin Mining Work?” Investopedia, 5 May 2022, www.investopedia.com/tech/how-does-bitcoin-mining-work.

Posner, Eric. “Fool’s Gold.” Slate Magazine, 11 Apr. 2013, slate.com/news-and-politics/2013/04/bitcoin-is-a-ponzi-scheme-the-internet-currency-will-collapse.html.

Williams, Jay. “A Brief History of Bitcoin.” James Moore, 24 June 2022, www.jmco.com/brief-history-bitcoin/#:%7E:text=Bitcoin%20was%20first%20introduced%20in,and%20recorded%20on%20a%20blockchain.