A Bitcoin boom could make millionaires, but a bust could just as easily destroy the cryptocurrency. So what exactly is Bitcoin and how does it work? LSA researcher Lynette Shaw provides insights about new forms of digital currency—and what actually makes something worth anything.
According to Shaw, an assistant professor in the Center for the Study of Complex Systems, cryptocurrency like Bitcoin is “money without a state.” She says, “The original founding ideal of Bitcoin was to create an alternative form of money that didn’t require either the state, a central bank, or any trusted third-party actors to handle transactions.”
Shaw compares the value of Bitcoin to a designer handbag. “You pay a lot for it not just because you will get some use out of the bag, but because you know that other people will pay a lot for it,” she explains. “I’d argue that to succeed as money, cryptocurrency has to become like a U.S. dollar or designer handbag, where people take its worth for granted—the point at which, collectively, we start to automatically treat its perceived value as reality.”