What is behind the recent surge in the price of Bitcoin?

Throughout most of its history, speculative interest has driven the bitcoin price. It has shown features of a bubble as its price has spiked outrageously within a short space of time and a craze of media following. 

In the latest developments, a sustained increase in bitcoin price has seen it rise by over 300% in the last year. This is the third in a cycle of peaks of the cryptocurrency since 2013. Unlike a stock or bond, it is hard to determine the bitcoin price.  

Is Bitcoin Fiat?

Fiat has value because parties exchanging it agree on its value. Bitcoin is fiat in the sense that it was brought about by Satoshi Nakamoto. It derives its value from the willingness of a community to use it. 

According to Satoshi, the original intent for bitcoin is about eliminating trusted intermediaries and establishing a decentralized network with no single points of failure. 

What bitcoin is not

Although Bitcoin has enjoyed widespread adoption and backing, it is not issued or backed by any bank or government. Neither are individual bitcoins valuable as a commodity. It is not legal tender. 

Bitcoin is not about fiat debasement and central banks as some people claim. It is about commercial bank failures and taxpayer bailouts. 

Bitcoin came into existence in 2009. Being the first cryptocurrency, it has gained widespread recognition and notoriety. It is both famous and controversial. 

Bitcoin and other cryptocurrencies created a new payment system based on blockchain technology. It uses a distributed public ledger system. Transactions are validated by a decentralized user network. 

The accuracy and consistency of transactions are ensured by the use of advanced cryptographic calculations. 

At the moment, bitcoin has not fully met the requirements to be considered a legal Tender. In a modern economy, money serves three purposes: It is a medium of exchange, it acts as a store of value and it is used as a unit of account. 

Although it has enjoyed backing from the likes of PayPal, square, and other payment platforms, bitcoin, and other cryptocurrencies remain a niche payment method.

In addition, the high volatility in the bitcoin price is one of its deficiencies. The high fluctuations in the price of Bitcoin make it unusable for denoting relative price levels. In fact, stablecoins have more potential to be used as future exchanges than first-generation cryptocurrencies such as Bitcoin. 

In the meantime, bitcoin's role as a store of value has been a subject of heated debate. With the backers vouching for Bitcoin as a reliable store of value while skeptics question the true worth of bitcoin. For instance, its value is not based on any particular commodity. 

A major part of Bitcoin's appeal lies in the fact that it is scarce. By design, only 21 million bitcoins are expected to ever be mined. Critics note, new York's famous Chinese however, that there is nothing stopping the creation of any number of new cryptocurrencies based on the underlying blockchain technology.

How Bitcoin is mined 

The mine Bitcoins, machines are connected to the network. They verify transactions made by people sending or receiving Bitcoin. 

A "worker" is necessary for the blockchain pool to track the hash rate of individual mining devices and adjust the difficulty accordingly. The puzzles provide an obstacle to ensure records of transactions are not fraudulently manipulated. 

 To make as much money from this process as possible, people often connect large numbers of miners to the network - even entire warehouses full of them.