On Thursday, September 17, 2015, Bitcoin, one of the rapidly growing number of digital currencies, or cryptocurrencies, was declared a commodity by the Commodities Futures Trading Commision. A commodity is traditionally a raw material or agricultural product that can be bought and sold. The CFTC made this decision in settling a lawsuit against the now out-of-commission San Francisco digital currency Coinflip.
Bitcoin is an online community that operates by its members “mining” for Bitcoins. Mining for Bitcoins works like this: one member gives Bitcoins to another and this activity is recorded with all the other transactions in that time period, called a “block.” The persons involved in the deal then confirm and record it into the “blockchain,” which is a long list of the activity of every member over a longer period of time.
To ensure that the blockchain is not tampered with, miners take the blockchain and make their own shorter, encoded copy of it. This is called a “hash.” Hashes are easy to produce, but since they are randomly generated, they are very hard to decode. This makes hashes a secure form of data storage. When a hash, with all of its components, is successfully created by a user, they are awarded 25 coins.
Bitcoins, like other commodities, are valued in large part based on demand for them. They fluctuate frequently. For example, between the second week of September and the first week of October, the value of a Bitcoin increased from $239.50 to $255.06.
Why does it matter that Bitcoins are now considered commodities? The title of commodity does not affect how the online community of Bitcoin will handle itself, but legitimizes the currency. This will likely lead to new members, which would increase the overall value of a Bitcoin. The decision also proves that cryptocurrencies are increasingly highly regarded and that they can flourish if they are run well and used often.
There are currently around one thousand digital currencies, though Bitcoin has by far the most popularity and value as a trading community. Many digital currencies are very unsuccessful, but that may change as the market grows larger.
As money continues to become less coins and more code, less bills and more binary, national economies have the potential to be unified under a single online currency. The increased unity could lead to economic development and growth all over the world. Major digital currencies have to be very safe in hacking, so that it would not be a concern for governments.
It is unlikely that countries will tell their people to exchange their money for accounts anytime soon, but cryptocurrencies will offer a viable and sensible alternative in the future of money. Students interested in such topics should think about taking the AP Macro/Micro Economics course at Ridgewood High School. Additionally, students can join Finance Club held in room 309 during unit lunch every Wednesday.]