After starting the year valued at $1,000, Bitcoin is aiming to end 2017 strong—on December 7th, the price per coin hit a record of $17,000, marking an increase of more than 1,700%. Bitcoin is the largest of the cryptocurrencies, which are virtual coins that are mined—the process through which new bitcoins are created and transactions are recorded and verified—by computers using complex algorithms. Although bitcoin is forecast to grow even more in 2018, the cryptocurrency market makes many economists uneasy, and there are predictions of a bubble ahead.
Bitcoin was introduced to the world in 2008, when a paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” was passed around a cryptography mailing list by a person known only as Satoshi Nakamoto. Satoshi’s identity is still a mystery to this day, despite best efforts to identify the creator. Because bitcoin had never been traded, only mined, it was impossible to assign a monetary value to it. In 2010 the first person sold theirs, swapping 10,000 bitcoins for two pizzas. If they had held onto those bitcoins, they would be worth more than $100 million dollars today.
The cryptocurrencies lack of government backing and regulation has led to a volatility that scares some investors. After reaching a new record of more than $17,000 on December 7th, bitcoin’s price plummeted to $13,964 the next day. Bitcoin has many skeptics, including Warren Buffet, who thinks the digital currency will “end badly.” When asked about bitcoin at an investment conference, JPMorgan Chase CEO Jamie Dimon said the digital currency was a “fraud that would eventually blow up” and that his firm would fire anyone at the bank who traded it “in a second.” Joseph Stiglitz, an economist and Nobel laureate, said that bitcoin “ought to be outlawed.” However, not everyone feels the same way. A survey conducted by Harris Poll found that 27% of millennials would prefer to invest in $1,000 of bitcoin versus the same amount of stocks. NASDAQ plans to launch bitcoin futures in 2018, which is expected to prompt a flurry of interest from established fund managers.
In addition to the unpredictability that surrounds it, some experts predict an environmental crisis is looming if bitcoin continues on its current trajectory. Bitcoin uses about 32 terawatts of energy transactions are processed, bitcoin could be consuming enough energy to power e thU.S. by the middle of 2019. every year, enough to power about three million U.S. households, according to the Bitcoin Energy Consumption Index. At that rate, if there isn’t a significant change made to how transactions are processed, bitcoin could be consuming enough electricity to power the U.S. by the middle of 2019.
Despite these misgivings, bitcoin and cryptocurrencies look to be here for good. On December 10th, the Chicago Board Options Exchange became the first traditional exchange to offer bitcoin futures, opening at $15,000 and rising 11% within the first six minutes of trading. An influx of traffic caused the CBOE website to crash on Sunday, and trading was suspended twice due to price swings by 10% or more. The volatility is expected to drop over the long run as the market gains more legitimacy.
