What Drives Up the Price?

07 Jun

With so much hype around the "digital cash" called bitcoins, it's easy to forget that the original "bitcoin" was actually worth something - back in the days when it was called simply bitcoins. Back then, the single bitcoins could be worth nearly $12. Now they are worth less than a dollar apiece, maybe even on occasion. Is the hype really all that interesting? Actually, no, because it's important to understand how the value of bitcoins has been able to increase this much in such a short time. And for those who have been around awhile, there's no real secret.

For anyone interested in the world of cryptography and the world of money, there's no better place to learn about bitcoins than the bitcoin marketplace. There are dozens (even hundreds) of websites offering information about the inner workings of this relatively new kind of online money. With any major bitcoin price fluctuations making news and keeping investors on their toes. Even in countries that already accept it as legal tender, you can purchase clothing and groceries just like you would with your national currency.

But what really makes bitcoins stand out from traditional money? For starters, unlike traditional money, which travels through a physical entity (the dollar), bitcoins are actually generated with mathematical algorithms on a distributed network. Those algorithms change constantly, and so do the number of units that can be produced. By following the mathematical algorithm, regular users on the network are assigned their own discrete amount of bitcoins. The only real limit to the number of bitcoins that can be created is the speed with which the algorithm can process them. The number of users determines the speed with which the transactions occur - and because there's no central authority to enforce transaction fees, users have to pay those themselves.

The limited supply of bitcoins combined with high transaction fees causes the price of each transaction to fluctuate. While the network is supposed to be self-regulating, the real world tends to have more substantial influences over its conditions. In cases where the market feels that the users of bitcoins are spending too much, a "hodgier" environment can develop, with users being told that they're likely to be hit with larger charges if they attempt to withdraw their balances. This may drive the market capitalization of bitcoins even further up, towards the two-digit average range rather than moving into the six-figure-figure range.

Because there aren't any physical currencies to back bitcoins, their value isn't subject to any physical laws. While governments might attempt to control the sale and circulation of other currencies, they have no say over how bitcoins are created or taken advantage of. This has led to fears that virtual currencies will lead to hoarding, speculation, and eventual collapse. These worries haven't materialized, however, and the bitcoins have been increasing in value with no crashing markets or disastrous consequences. One reason for this is that as digital currencies, they're not subject to the legal and political constraints that physical currencies are obligated to adhere to.

Nakamoto's original plan was for a system of bitcoins that could be used without the need for a central bank, a government, or anyone else controlling it. The first cryptocurrency was simply an upgrade to the existing Cryptonote protocol. The protocol that Nakamoto created, Cryptonote, was designed to be able to track and communicate the activities of all transactions that had taken place on the bitcoin network. The work that went into making the first cryptocurrency is what paved the way for other developers to take the idea further and create additional blockchains, including Hypercash and Litecoin. Check out this site virgocx.ca for more details.

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