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Bitcoin's Early Impact

Although Bitcoin is still a very new technology, we can already point to several notable achievements, not only in computer science but also in economics and politics.

It Is the Largest Distributed Computing Project in History

Less than three years after its inception, Bitcoin had already eclipsed famous distributed computing projects, such as SETI@home, in terms of total computing power.[1] Two years later, that computing power had further grown by a thousand times. By April 2014, if you combined the strength of the world's top 500 supercomputers, the result would be a computer less than 0.05 percent as powerful as the Bitcoin network. This incredible growth, particularly in recent years, was made possible by the large-scale manufacturing of special-purpose computer chips designed solely for Bitcoin mining. In addition to the enormous increases in computing power, the very existence of factories producing hundreds of thousands of single-purpose Bitcoin-mining computer chips has been remarkable. (We'll discuss the potential negative environmental impact of Bitcoin mining later in this chapter.)

It Is a Massive Economic Experiment with Already Surprising Results

Prior to 2009, most people would have reasonably assumed that computergenerated tokens, which anyone could create with free software, could never have meaningful value. This assumption turned out to be dramatically false. Bitcoin's value grew by 1,000 percent each year for five consecutive years (from less than a penny each in 2009 to over $1,000 by the end of 2013). Within five years, the total value of all bitcoins in circulation was greater than the money supply of the national currencies of more than 100 countries.[2] The low fees and higher security associated with Bitcoin, compared to credit card-based payment systems, gave merchants good reasons to accept it. As of September 2014, at least 40,000 online retailers were accepting Bitcoin,[3] as well as over 5,400 brick-and-mortar stores.[4]

Although the long-term viability of Bitcoin as an economic tool is still in question, the fact that it has attained value at all has challenged many people's notions about the nature of money. Not surprisingly, economists have been paying attention to Bitcoin, and research is being published analyzing the economics of Bitcoin. More than 2,100 scholarly articles on the economics of Bitcoin had been written as of September 2014.[5]

It Has Prompted Serious Discussions Within Governments About the Role of Digital Currencies

Although some companies had dabbled in the issuance of digital currencies to their customers prior to Bitcoin (sometimes even currencies that exist only in a computer game), these actions didn't attract the attention of governments or large financial institutions, except for some law enforcement actions. Bitcoin, on the other hand, has stirred heated debates among politicians, regulators, and bankers. Several US Senate hearings have been dedicated to discussing the subject. Central banks in dozens of countries have issued statements or reports specifically in regard to Bitcoin, and so have major banks and financial institutions. In November 2013, for instance, the United States held congressional hearings on the regulation and the future of Bitcoin, and these received widespread publicity.

Bitcoin has drawn society's attention to the potential promises and perils of digital currencies in a largely digital world. Even if Bitcoin disappears, its creation has already influenced future legislation and policies toward digital currencies.

  • [1] These are only rough estimates; the computing power of supercomputers and such projects is often measured in the number of floating-point operations per second (FLOPs). Bitcoin doesn't use floating-point operations but rather purely integer-based operations, so assumptions need to be made about how to compare these two types of numeric calculation.
  • [2] Here we are using the narrow money stock, also called the M1, of each country's national currency as a comparison.
  • [3] As claimed on the BitPay home page in September 2014
  • [4] As claimed on the CoinMap home page in September 2014
  • [5] As indicated by a search of the Google Scholar article index in September 2014
 
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