University at Buffalo School of Management

12 Buffalo Business Autumn 2018 The real Occupy Wall Street Cryptocurrency traces its roots back to 1998, when computer engineer Wei Dai published his paper, B-Money: An Anonymous, Distributed Electronic Cash System. In it, he outlined the basic properties of all modern-day cryptocurrency sys- tems: "a scheme for a group of untraceable digital pseudonyms to pay each other with money and to enforce contracts amongst themselves without out- side help." But it wasn't until 2009 with the creation of bitcoin that cryptocurrency really started to take shape. That year, "Satoshi Nakamoto," a pseudonym for the person or group of people behind the tech- nology, released the original block of 50 bitcoins and le a message in the code: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" It's a headline from British daily newspaper The Times, included as proof of the date the block was created, as well as a comment on the state of the banking industry in Britain at the time. It suggests that the financial collapse of the late 2000s and the Occupy Wall Street movement influenced the cre- ation of bitcoin. Nakamoto le the project in late 2010, but the creation would live on to achieve more widespread adoption, public acceptance and use in the years ahead. Cash for the internet But what is bitcoin? It's a computer network that enables a new payment system and complete- ly digital money. It's the first peer-to-peer payment network with no central authority or middlemen, allowing people to buy and sell goods and services directly with each other. "Bitcoin is a mode of transferring value be- tween individuals," says Brian Wolfe, assistant pro- fessor of finance. "It's valuable because we believe and agree that it is, just like a dollar." According to CNBC, more than 100,000 mer- chants worldwide accept bitcoin, including Microso and Expedia. But major players like Amazon and Walmart haven't jumped on the bitcoin train just yet, and it's more uncommon for brick- and-mortar retailers to accept it than online busi- nesses. Some businesses are beginning to, though, such as REEDS Jewelers, which has more than 60 stores in the eastern U.S. Right now, most people are trading it as an in- vestment rather than using it as a medium of ex- change, as evidenced by the run-up in the value of a single bitcoin to nearly $20,000 late last year. And, by design, there's a finite amount of bitcoin — at most, only 21 million will ever exist. So in some ways, a bitcoin is more like a gold bar than a dollar bill. The other reason people may not be using bit- coin to buy and sell is because of how much its value changes every day. Wolfe found that bitcoin is six to 10 times more volatile compared to even the most unstable global currencies, such as the Turkish lira. "Bitcoin isn't a good store of value," says Wolfe. "If I hold a dollar today, will it buy a cup of coffee? Pretty close. If I wait until next week, will it still buy a cup of coffee? Most likely. With bitcoin you don't know. Maybe next week it'll buy three, but maybe it'll only buy half a cup." " Bitcoin is a mode of transferring value between individuals. It's valuable because we believe and agree that it is, just like a dollar." Brian Wolfe Assistant Professor of Finance THE RISE OF BITCOIN

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