Name: The Age of Cryptocurrency
Rating: 4.2 (308 reviews)
Author: Paul Vigna and Michael J. Casey

What’s in it for me? Learn the real stories behind Bitcoin and how it works.

Whether you heard from the news or online or from a friend who claimed it’s the best investment for the future, you’re probably aware of Bitcoins by now. This is the digital currency sweeping into conversations from the government to Wall Street to chat rooms.

How does this currency work without any paper money? How do you know if you can trust it to have any value? How can you be sure it won’t be hacked, turning your Bitcoins into worthless numbers on a screen?

Read on to find answers to all those questions, as well as a brief history of Bitcoins.

In these blinks, you’ll discover

how the first Bitcoins used to buy pizza are now worth $5 million;
how people use Bitcoin to hire hitmen; and
why companies spent close to $100 million on Bitcoins.

Money has value when it’s based on a system of trust.

What is money, exactly? It’s not the bills in your wallet. Those bills don’t have any inherent value – they’re just bits of paper. So why can you buy goods and services with them?

For money to have value, there needs to be a shared agreement on its use as a medium of exchange.

In money’s earliest days, gold or silver was often used to make coins. These coins were different from our modern bills, because gold and silver have intrinsic value. However, there was only one reason why these coins functioned as money: the people using them valued gold and silver, and agreed they could be used to buy things.

If you traded with a culture that didn’t value gold or silver, your coins were worthless. Cultures don’t always value the same things.

The Micronesian island of Yap, for example, had a peculiar currency system that puzzled early visitors from Europe. They used huge stone wheels called fei as currency. These stones were so heavy that they often remained with the previous owner after an exchange.

The system worked because the Yapese agreed that the ownership (or partial ownership) of fei could be used to settle debts.

A society needs some kind of trust in its money to have a controlled supply of currency. If just anyone could create new money, money would lose its value. There needs to be a limited amount of it for the system to work.

In the 1920s, the Weimar Republic learned this the hard way. Germany had tremendous debt following the Versailles Treaty and tried to pay it by printing more and more bills. The value of the bills became so low that people began using them as wallpaper because it was cheaper than buying actual wallpaper. This hyperinflation caused the economy to collapse, and people lost their faith in the monetary system.

Bitcoin is money because people agree it can be used as a unit of exchange.

The number of Bitcoin supporters is growing every day, but many people still have a hard time viewing it as “real” because you can’t see or touch individual Bitcoins. Bitcoin has already proved itself to be a viable currency, however.

Bitcoin functions as money because people trust that it has value – just like “normal” money. When people started to see that real things could be bought using it, trust increased.

Bitcoin has become a global business.

Bitcoin has only been around a few years, but the number of Bitcoin believers has grown quite rapidly. All across the globe, people are devoting themselves to Bitcoin. It’s becoming very profitable to do so.

Huge amounts of money are now invested in Bitcoin mining every year. According to one estimate, over $1 billion was spent on building “rigs” of super-fast computers designed specifically for mining Bitcoins between April 2013 and April 2014.

Bitcoin could have a huge and positive impact on the developing world.

There are about 2.5 billion people worldwide who don’t have money in banks. They lack many of the freedoms people in developing countries take for granted. Bitcoin could change all this.

Bitcoin can give people in developing countries more economic freedom. Fatima, a mother of five who lives in a refugee camp in Mali is an example of this.

Key ideas in The Age of Cryptocurrency