What's Behind Bitcoin's All-Time High Value
SCOTT SIMON, HOST:
The value of bitcoin rose this week to over $15,000. A what? - a coin, a bit? The digital currency has fluctuated since it was introduced in 2009. And just talking about bitcoin right now, here on NPR, could affect its value according to Timothy Lee, a senior tech reporter at Ars Technica. He joins us in our studios. Thanks so much for being with us.
TIMOTHY LEE: Hi. Thanks for inviting me.
SIMON: So merely you and me uttering - talking about bitcoin could affect its value?
LEE: I think so. I mean, what you see - you've seen the price go up very quickly over the last few weeks. And you see this feedback loop where the price goes up, the media talks about it. New people hear about it. This is kind of the classic bubble psychology. People hear about it. And they say - oh, maybe I should get in 'cause this is an opportunity. And then the cycle repeats. The price goes up some more, and so it gets more coverage.
SIMON: Get into what? I mean, what is it? I'm afraid, after all this time and all these stories, I'm not sure I know what a bitcoin is.
LEE: So a bitcoin is just a - it's a form of electronic money. And with the traditional payment network like PayPal, the payments are made in dollars. But bitcoin is a completely autonomous, decentralized payment network, and so it's not based in dollars. Instead, it has its own currency just called the bitcoin. And its value floats against other currencies the same way the dollar and the euro float against each other. And over the last six years, it's gone up quite a lot. It was worth less than a dollar in 2011. And now, as you said, it's worth more than $15,000.
SIMON: Could you buy a pack of gum, a car, a shoe factory with bitcoin?
LEE: Yeah, absolutely. There's a number of companies now that will accept bitcoin as payment. Overstock.com is probably one of the better-known ones. And you can also pretty easily cash in bitcoins for dollars and buy things that way. But yeah, it's a pretty widely used currency on the Internet.
SIMON: Is there a black market?
LEE: One of the things you can buy with bitcoins is illicit products, like drugs, for example. And it has proven to be a particularly attractive application for bitcoin because if you tried to set up a black market for drugs and accept credit card payments, the credit card networks would shut you down right away. But there's nobody who runs the bitcoin network, and so there's nobody the authorities can go to and say, shut down this network or reverse that payment.
SIMON: I gather bitcoin's created through mining but not, like, chisel and cloud of dust mining. Right?
LEE: Yeah. So mining is the term that bitcoin people use for the process that computers use to kind of run the bitcoin network. There's a global shared record of who has made which payments to whom. And the computers that participate in this process get a reward of new bitcoins. Right now, every block, which happens about 10 minutes, you get a reward of 12.5 bitcoins, which is worth more than $100,000. And they call it mining because you're creating new bitcoins in the process of running the network.
SIMON: And that takes a lot of energy, I gather.
LEE: It does. One recent estimate said that the bitcoin network as a whole consumes about as much energy as the nation of Denmark.
SIMON: Who seems to be betting on bitcoin?
LEE: I think, in the very early days, it was computer nerds - I mean, you know, technologists - people who were really interested in the technology. And now it's, I think, more just ordinary people who hear about bitcoin, obviously do some reading - have some understanding of how the technology works but, I think, see more of either profit opportunity or just like the idea of it. I think there's a significant political strain behind the appeal of bitcoin - people who don't like the Federal Reserve, don't like big banks, don't like conventional financial institutions.
SIMON: Don't like taxes?
LEE: Don't like taxes - exactly - kind of libertarian-minded people.
SIMON: Well, what do you think it's going to do?
LEE: I think it's going to continue to be volatile. I think it will probably go up more, but I don't know how much more. And then I think it will probably crash. But I don't know how much - you know, how far down it will decline.
SIMON: Timothy Lee, senior reporter at Ars Technica, thanks so much for being with us.
LEE: Thank you.
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