Ben Parker (left) and Eric Engebretsen (right) recently started a crypto club on BYU campus. The Crypto Club gathers students who want to learn about blockchain, bitcoin, and other crypto currencies and explore what other uses of the technology could be. (Tanner Thelin)
Millennials, Wall Street junkies and cyber-challenged investors have all been asking this question to their most tech-savvy friend: What is bitcoin?
The infamous cryptocurrency has recently garnered attention in the national news and on social media, but not many people understand what bitcoin actually is, nor the untraceable coin's potential.
BYU students Eric Engebretsen and Ben Parker recently started a crypto club at BYU to help inform other students who want to learn about bitcoin, blockchain and other cryptocurrencies and its additional uses.
How bitcoin works
“It’s just like any other currency (in the sense) that it’s only worth what we think it’s worth,” said Taylor Wells, a BYU information systems assistant professor.
Bitcoin is a type of cryptocurrency which has been rising quickly in popularity and value, but it also has a stigma for being used mostly in the black market because it is untraceable. Bitcoin is only electronic, and uses a secure technology called blockchain which needs no outside sources to monitor a transaction.
“Typical money is regulated by a federal government, and they decide the worth of money or how it is used, but with blockchain it’s only regulated by the laws of math,” Parker said.
The math used for bitcoin is based off cryptology, or one-way encryption algorithms, which is why it is called a cryptocurrency. Bitcoin is not a company; it is simply a form of currency.
“With bitcoin, there’s a limited supply. The protocol math equation says there can’t be any more and so it regulates itself,” Parker said.
The blockchain technology bitcoin uses is similar to a ledger; each transaction is a block, and the blocks connect so each transaction can't be altered. The blockchain is available for anyone to view, so they can see the amount of bitcoin transferred and where it went, according to Wells.
The person who likely invented bitcoin, Satoshi Nakamoto, disappeared and never said whether he was the inventor, according to Parker. Although there is no founder overseeing bitcoin, Bitcoin Foundation, a nonprofit organization founded in September of 2012, moderates and upgrades bitcoin to ensure it remains secure.
Rising value of bitcoin
The high demand and low supply of bitcoin is why the value of bitcoin has increased so quickly, according to BYU economics assistant professor Christian vom Lehn. If demand outstrips the supply, the small amount available is worth more. This is called deflation.
The value of one unit of bitcoin went up about $800 from Oct. 24 to Oct. 31, according to Wells, and the current value of a bitcoin is roughly $7,000. Someone who had exchanged one dollar to bitcoin a few years ago would have thousands of dollars today.
When bitcoin first began, it was worth a little less than a dollar. On Nov. 1, one bitcoin was worth $6,553.22. The value of bitcoin is rising rapidly, but economists are still skeptical over whether it actually qualifies as currency since it's so volatile. (Haley Mosher)
Bitcoin is extremely volatile, Wells said. Lately its value has gone mostly up, but according to Wells that could change.
Although bitcoin values are going up, economists are still skeptical over whether it really qualifies as currency, according to vom Lehn. In principle, it holds value and works for exchanges, but since its value is so changeable, economists are nervous its value will not last.
Current uses of bitcoin
Much of the current appeal to bitcoin is that it is a secure form of money, even with no regulator.
'The biggest impression I think many of us have is that bitcoin is highly valued for the anonymity involved with it. There’s no doubt that it’s going to be a prime candidate for the informal sector of economy,” said vom Lehn.
Because of the anonymous nature of bitcoin, it can be used in the black market or in other shady monetary exchange. Although each bitcoin transaction is available online, who the money is transferring to and from cannot be seen. It appears only as strings of letters and numbers.
However, bitcoin is also becoming useful for normal transactions. Countries like Japan recognize bitcoin as legal tender, and large companies like Overstock are starting to accept bitcoin as payment as well. Parker and Engebretsen said they think Amazon will start accepting bitcoin in the near future.
How people are getting involved
There are two ways to acquire bitcoin: it can be exchanged for money or obtained from something called mining.
Mining is essentially running equations on a computer to find the right string of numbers and letters, otherwise know as hash, that will create the correct output. This requires a substantial amount of energy and processing power. People can join a pool where they work together on all of their different computers, and then split the bitcoins they find, according to Wells.
In addition to starting the Crypto Club, Parker and Engebretsen are also designing a website that will take spare change from a transaction and convert it into bitcoin.
Crypto Club
“Our club focuses on all things crypto — crypto currencies as well as applications of blockchain technologies in order to ... help prepare students as they enter into the work force and have to deal with this technology,” Engebretsen said.
Just from conversing with friends and people who have expressed interest, Engebretsen said they already have about 25 to 30 students who are interested in joining the new club.
“It intrigues students from all different backgrounds, from all different schools and majors within BYU. It’s kind of cool to find something that brings people together (and) finds people that are passionate,” Engebretsen said.
Future for bitcoin and blockchain technology
Engebretsen said the technology used in bitcoin has many unexpected, real world applications. There could even be eventual uses for BYU, he said.
“One thing we’d love to see is the next time you use Cougar Cash that it’s not actual money, it’s like a crypto,” Parker said. “I don’t think you’d see a lot of changes on the front, but maybe BYU would use blockchain for their security.”
This potential uses of this new technology in different fields is just starting to be explored. Learning about crypto technologies is a new experience for people like Parker and Engebretsen.
“(This experience) has been unique because we are so relatively new in this space that we as students have been able to connect with industry and thought leaders from all over the country and all over the world,” Engebretsen said.