Bitcoins, the digital currency that’s been making headlines almost nonstop lately, suffered a major price crash yesterday, losing more than half its value in under 24 hours.
That shock movement is shaking the peer-to-peer economy and any shred of trust in the currency’s stability. And it’s also making a lot of people stop and realize that they don’t really understand what bitcoins are.
Bitcoins were trading at an all time high of $266 (USD) as of Wednesday morning before they suddenly entered free fall. After regaining some strength, they closed the day at $105. The proximate cause: the currency’s biggest exchange, Mt.Gox, buckled under increased demand, causing a slowdown in its systems that ushered a mass panic and massive sell-off.
All this sounds like standard after-the-fact market analysis, except that we’re talking about a digital currency with no central bank or government regulation. Bitcoins can be used to donate to Wikipedia or purchase add-ons to your WordPress page. They can also be used to purchase illegal firearms, hire a contract killer, or buy drugs over what’s known as the darknet—an underground web of sites, like the infamous Silk Road, where users communicate with complete anonymity.
That’s where the true value in using bitcoins lies—anonymity. Through complex processes, your recognized currency is transformed into bitcoins and becomes ready for instant peer-to-peer transactions, leaving no trace of where the money originally came from thanks to cryptography. Even more mysterious is the fact that nobody even knows who invented the bitcoin.
What are those complex processes? Designer Duncan Elms has created a visually stunning piece, narrated by Australian journalist Marc Fennell, that helps explain what the heck bitcoins are and what their purpose is. Because of the volatile nature of the market of late, some of the numbers—specifically the trading amount of bitcoins—are already outdated, but the step-by-step breakdown is spot-on. It’s a must-watch for everyone who’s been trying to wrap their heads around the currency.
