Section 25.1 - Money - Page 649
“…..Since then, the system of fiat currency has performed well: the buying power of paper currency has been far less volatile than the buying power of gold. Almost no economist believes that the United States should return to a "gold standard"-a system in which paper currency is convertible into gold.
In fact, new non-convertible electronic currencies are now being introduced by private organizations. Because these new currencies are not endorsed by the government, they are not fiat currencies, and their future success is any one's guess. These electronic cryptocurrencies are pro tected by computer codes (cryptography) that make theft of the currency difficult, though not impossible. The use of computer codes also hides the identities of the agents who use the currencies. The most famous-and the first cryptocurrency is bitcoin, which is accepted by more than 100,000 businesses.
Cryptocurrencies have had a controversial start. The electronic exchanges on which cryptocurrencies are traded have frequently been used for illegal transactions, such as the sale of cocaine. Moreover, several exchanges have been hacked by rogue computer programmers, re sulting in electronic thefts. For example, the bitcoin ex change Mt. Gox declared bankruptcy after $477 million was stolen. The cryptocurrencies have also had volatile valuations, because the public's demand for these new currencies waxes and wanes. For example, during 2013 the value of a bitcoin rose from $13 per bitcoin at the start of the year to a peak of $1,163 in November! After that, the cryptocurrency kept trending lower, until it bottomed out at $177 in January 2015. Then, 2016 was a huge bull market for bitcoin. By January 4, 2017, bitcoin traded at $1,130. But one week later bitcoin had fallen back to $776, a decline of over 30 percent. Bitcoin has been a financial roller coaster.
Despite its price appreciation in 2016, bitcoin is still a tiny player in the overall economy. The total value of bit coin currency is only $16 billion, which is less than 1/1,000 the value of total U.S. GDP”
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