The German Federal Ministry of Finance has officially recognized the Bitcoin as a “private money.” While not quite the same as being recognized as currency, it does mean that the German Government has recognized that transaction can and do occur in bitcoins on a wide scale. This is a big win for the growing cryptocurrency designed to allow money to change hands without the need for banks or other institutions getting involved.
Its intended as a win for Germany, as well. The idea is that if the euro should ever fail and companies begin conducting business using bitcoins instead, the groundwork is already there for bitcoins to be taxed. For now, the use of bitcoins is by businesses is being highly regulated; bitcoins must be managed by a qualified professional, a considerable initial investment must be made, and a business plan must be submitted to German officials. However, the Germany’s acceptance paves the way for bitcoins to be legitimized elsewhere, such as the US, where bitcoins are currently under much scrutiny, or in Thailand where the lack of laws lead officials to ban bitcoins outright.
With the explosive growth and growing acceptance, facing the issue of bitcoins will soon be on many countries’ agendas. From the time of the bitcoin protocol first being published in 2008, the monetary value of the bitcoin network is estimated at $1.4 billion USD. Bitcoins were originally dubbed a peer-to-peer electronic cash system before receiving the common name we now know them as. The basic concept is that server nodes contain bitcoins, and by a user can connect to these nodes via the internet and decrypt where in the server the bitcoin is. As more and more bitcoins are mined in this way, the decryption step becomes more and more complicated. This means that the initial distribution launched high volumes of easily accessible bitcoins into the market, but as time goes on they become more and more difficult to acquire leading to their rapid growth.
However, the bitcoin has ceased it’s rapid growth as the encryption reaches the point where only high-end GPU computing can mine them. This has lead to a volatile exchange rate reacting to newly added bitcoins, exposed flaws in security, and political changes like those in Germany, among a host of other factors. This variability lead to fluctuations from $230 USD per bitcoin in early April 2013 all the way back down to $50 USD by the end of the month, and bouncing back up to $100 USD in May, before fluctuating more stably around $70-80 USD throughout the summer. When a vulnerability was discovered for all bitcoin wallets generated by Android in early August (which has since been fixed), many began to question the viability of the bitcoin long term.
For now, though, bitcoins are holding on through the confidence of the consumers. And personally, I think they’re a really cool idea.