Cryptocurrencies such as Bitcoin have experienced a rise in value in 2017. Bitcoin has peaked at around $20,000 per coin in December of last year.
As cryptocurrencies gain popularity across the world, St.Ed’s students are working to understand its complexity before cyber-security regulators stop these online currencies for good.
“As our global economy evolved, governments gained more agility to supervise transactions,” said Ali Dadpay, professor of economics at St. Edwards. “Cryptocurrencies undermine this supervision so a global crackdown on cryptocurrencies is inevitable.”
When Bitcoins were created, their founder, Satoshi Nakamoto, set it up as a system where people could use their computers to solve complex algorithms.
If the algorithm is solved then a cache of bitcoins is rewarded. When the cache is rewarded the Bitcoins are verified in a network between other Bitcoin users.
Once it its verified, the currency is untraceable and functional for public use, leaving no limit to what a person can do with it.
However, there are drawbacks to this system. For starters there is a finite supply of Bitcoins that can be produced with a cap at 21 million bitcoins (around 17 million bitcoins are in circulation currently) and it is estimated that the final coin will be mined around the year 2140.
As people begin to solve the algorithms faster, they automatically begin to become more complex.
In order to mine a Bitcoin at this point, investors would need to purchase an AISC (Application-Specific Integrated Circuit) a computer that is solely devoted to solving Bitcoin algorithms.
Additionally, they would need to join a mining pool, a group of people who combine their computers to solve the algorithms faster and then split the profits, in order to make any headway.
“Originally you only needed a computer graphics card to solve the algorithms,” said Brendan Jaggers, a finance major and founder of the St. Edward’s Cryptocurrency club. “Now you need an AISC and these can cost thousands of dollars and involve long wait times to acquire.”
And during said wait times, the algorithms are only getting harder and harder to solve. Because of this, Jaggers believes that Ethereum, another form of cryptocurrency is better.
“The best thing about Ethereum is that there is no cap to how many coins can exist, so this allows more people access to it and makes it more decentralized,” said Jaggers.
Ethereum also serves as a playground for many different types of cryptocurrencies allowing users to experiment and create their own. However, although the general public can experiment with the creation of their own monies, national governments have begun cracking down on the use of cryptocurrencies.
This is because purchases made through cryptocurrencies are difficult to trace and people can use them for drugs, weapons, human trafficking and tax evasion.
On the notion of tracking down cryptocurrencies for tax purposes, Jaggers was unconvinced of its feasibility.
“No nation has the computing ability that would be required in order to track down every last purchase made through cryptocurrencies,” Jaggers said. “They can try, but they won’t get very far.”