Seven years ago on May 22, 2000, a bitcoin user named known only as "laszlo" put an ad up on a forum, wanting to trade bitcoins for pizza. The user posted this message to the bitcoin forum, eventually getting a response from a fellow user.
"I like having left over pizza to nibble on later. You can make the pizza yourself and bring it to my house or order it for me from a delivery place, but what I'm aiming for is getting food delivered in exchange for bitcoins where I don't have to order or prepare it myself, kind of like ordering a 'breakfast platter' at a hotel or something, they just bring you something to eat and you're happy!"He eventually traded 10,000 bitcoins for two Papa John's pizzas, a value of about $25 at the time. Considering that all Laszlo did was run his computer for a while to create the bitcoins, it was a terrific bargain for him.
The occasion marked the first time that the currency was ever used to purchase virtual goods, making May 22 of every year a sort of hallmark holiday for bitcoin enthusiasts. Since then, bitcoins have grown in popularity and use, with millions of people getting into "mining" the currency or using it as a non-traditional investment or currency.
What is Bitcoin?Bitcoin is a virtual cryptocurrency that started in 2009. It is produced by people using their computers to create new blocks of information. These blocks need to stand up to very strict requirements to be used. Without going into a bevy of tech-heavy speak, a bitcoin miner has to try a series of numbers, trying to find one that will create a block that has never been created before and also works with all of the previous blocks made before.
When creating this new block, there are no shortcuts other than trying a series of numbers in sequence. Most miners start with zero and work their way up. The latest number of tries that someone needs to create a new block has been estimated to be about 2.4 sextillion (2 with 21 zeroes after it). And that number goes up about every 10 hours. For every block that a person creates, they receive 12.5 bitcoins. As you can see, creating a new bitcoin takes a lot of computing power, with some people dedicating thousands of dollars to run specialized computers to create these new blocks.
As interesting as this is, you're probably wondering why you should care.
Bitcoin as an InvestmentAs a virtual currency has no ties to any single government, in times of uncertainty or change, people traditionally moved their money to gold or other precious metals. As government backed money fluctuates wildly in worth, it can often become worth less than the paper it is printed on. The hyper inflations of Turkey and Africa are two recent examples. The problem with traditional non-paper money alternatives is that they become easily stolen. While a refugee can hide an entire life's savings on their person in the form of a handful of silver or gold coins, the value of those coins transfers to whoever has them, making their theft lucrative for unscrupulous thieves.
Bitcoins, on the other hand, are tied to specific addresses on the internet. Not only that, accessing them requires a specific password that only the user knows. The password to access the value of the bitcoins can't be duplicated. There's a story that is often told of a man who lost 2,500 bitcoins because he accidentally threw away the hard drive that had the password on it. So even if a thief knows the address, it still has no value without the password.
Bitcoin has also become attractive to people who are looking to add a non-traditional investment scheme to their portfolio as well. With the current volatility of the U.S. stock market, investors are looking at bitcoins as a good long term investment and there's a specific reason. Those 10,000 bitcoins that Laszlo paid for the $25 worth of pizzas seven years ago? Today, they would be worth $22.5 million. That represents a growth of nearly 880,000 percent in just seven years. And that sort of return has investors from Japan to New York sitting up and paying attention.
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