In 2009, a programmer or a group of programmers created a cryptocurrency that is now known throughout the world as Bitcoin. The idea was simple: Create a currency that operates outside traditional currencies and regulations in an open source software. When it was released, Bitcoin was derided as a silly and ridiculous idea that could never succeed. Today, just one Bitcoin is worth more than $2500.

Blockchain Peer to Peer Currency

In this Peer To Peer system, users send each other money via transactions in the blockchain. These transactions are processed by "miners," who are paid bitcoins for their high value computing services.

The main value in the system is that there is no intermediary or financial institution taking a cut of the deal. It is simply a deregulated solution that evades the fees of banks and the regulations of government.

Did it Work?

When I first read that description, I wasn't convinced that Bitcoin could ever work. And neither could most people. But a simple look at the graph of Bitcoin's value over time shows us just how valuable people believe the cryptocurrency has become.

One year ago, one bitcoin was equivalent to about $500 dollars. Today, one bitcoin is equal to $2500 dollars! How is that possible? That return beats the stock market, it beats bonds, and it beats pretty much any investment out there.

Anybody who bought into bitcoin at inception and made any sort of significant investment is now very wealthy. But can bitcoin really continue to increase in value?

Bubble Warnings.

First of all, the stock market, an entirely separate entity from Bitcoin, is at an all time high. In the Trump presidency, the market has reached absurd levels and isn't yet showing signs of slowing down.

But when people start talking about investing in the stock market on a daily basis, it's a sign that it's time to get out. The U.S. hasn't had a recession like 2008, but we could easily be heading for another bubble soon.

Bitcoin could easily be riding this bubble right now, as there's no investment in existence that would have netted investors what Bitcoin has in the past year.

When that bubble does explode, miners and owners of Bitcoin could have trouble finding ways to liquidate their capital, and the worth of bitcoin becomes a bit questionable. For now though, owners of Bitcoin are likely content to sit on the reserves that they have already accumulated.

Money as an Idea.

To fully understand Bitcoin, it's also necessary to understand what exactly the position of our paper money is in. The reason why the US dollar is valuable is not because of our reserves of gold, it's because of our government's guarantee to back it up. There's much more paper money in the system than there is gold, which is why economies have been allowed to grow since Bretton Woods. However, all other countries have been forced to peg their currency to the USD, giving America an enviable position in the global marketplace.

Bitcoin could easily change all of that. If countries don't have to recognize the US dollar, they can operate outside of the peg and instead peg their currency to Bitcoin, which allows foreign countries to free themselves from a reliance on USD. And this is likely part of the reason why bitcoin has experienced its current rise, especially because Japan has recently recognized the cryptocurrency as legitimate.

Only time will tell if Bitcoin is here to stay and if it will retain all of its value.