On Tuesday evening, the value of one bitcoin shot above $10,000. It has been a remarkable run for a currency that was only worth about $12 five years ago.
The run has been particularly remarkable because it's still not clear what Bitcoin is useful for. During its early years, the cryptocurrency garnered a lot of optimistic talk about how it would disrupt conventional payment networks like MasterCard or Western Union. But almost nine years after Bitcoin was created, there's little sign of it becoming a mainstream technology. Few people own any bitcoins at all. Even fewer use it as a daily payment technology.
Yet that hasn't prevented the cryptocurrency's value from zooming upward. One factor driving Bitcoin's growth has been the emergence of a broader cryptocurrency ecosystem. Bitcoin serves as the reserve currency for the cryptocurrency economy in much the same way that the dollar serves as the main anchor currency for international trade.
In this piece, we'll explain the key innovation that set Bitcoin apart from all previous electronic payment schemes. We'll look at how Bitcoin won over regulators and venture capitalists to become a significant part of the global financial system. And we'll examine the cryptocurrency boom of the last year that has helped drive Bitcoin's value into the stratosphere.
While we can tell the story of Bitcoin's rise and point to some of the factors that have pushed its value upward, we can't really explain why the currency's value goes up or down during a particular day, week, or month. In particular, bitcoins have more than doubled in value since the start of October, which is hard to explain with anything other than speculative mania. People thinking about trying to get in on the Bitcoin boom should think carefully about the potential downside and not invest any money they can't afford to lose.
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