How long can cryptocurrencies like bitcoin shine?

iStock/Thinkstock(NEW YORK) — One of Silicon Valley’s latest stars isn’t on television or a music mogul. His name is Jeremy Gardner, dubbed a cryptocelebrity.

One source of his riches? Bitcoin.

Gardner, who calls himself a venture capitalist and cryptocurrency evangelist, even lives in a San Francisco house known as the Crypto Castle.

“When my startup first moved to San Francisco, we lived in a dingy two-bedroom apartment with six people and we called it the ‘bitcoin basement,’” Gardner, 26, told ABC News during a tour of the three-bedroom house he now shares with other diehard cryptocurrency believers.

“When we found a new house with spectacular views that really feel castle-like, Crypto Castle made sense. Little did I know it would become such a well-known name,” he added.

Imagine a dorm room combined with a think tank with a revolving door of “cryptonomads.” One notable guest, he says, was Vitalik Buterin, the 24-year-old founder of cryptocurrency Ethereum who’s reportedly worth more than $400 million.

If residents prefer, Gardner will accept rent payment in bitcoin, meaning the $1,600 rent could fluctuate with the volatility of the cryptocurrency.

“I ran out of USD [U.S. dollars] and needed a place to live, so I knew Jeremy would let me pay rent in crypto,” Jinglan Wang, a cryptonomad and executive director of the Blockchain Education Network, said.

What exactly is bitcoin?

The cryptocurrency is a digital currency that uses encryption techniques to control its creation and secure transactions, independent of a central bank. The encryption techniques make it notably difficult to create any kind of counterfeit.

“Bitcoin is pretty much like cash for the Internet,” according to bitcoin.org.

People can purchase bitcoins or fractions of a bitcoin through online exchanges or from an individual and store them in a virtual wallet.

“If you hold a U.S. dollar, the value really comes from a belief that the Federal Reserve, the central bank, won’t print too many other dollars,” finance professor David Yermack of the New York University Stern School of Business said.

“In the case of bitcoin and other digital currencies, you’re really relying on the mathematics and probabilities behind them that provide the basis for security that you believe that there won’t be too many issued because you can see the equations and the criteria for adding more units of currency,” added Yermack, who also teaches a course on bitcoin and cryptocurrencies.

There is a finite amount of bitcoin, only 21 million, that can ever be created, which is achieved through a virtual process called “mining.” Mining has been likened to gold mining; the more that is mined, the more difficult it is to find.

Bitcoin mining requires a special computer program that is used to compete with other miners to solve complicated mathematical problems.

Several companies, from Expedia to Overstock.com, have started accepting bitcoin for payment. Every bitcoin transaction is recorded in a secure, public, digital ledger called “the blockchain.”

“The logic of a blockchain is that you have records of data that are stored in blocks, and the blocks are arranged in a sequence such that the prior block is an input to the next block.” Yermack said.

Yermack cited the security of blockchain technology as one of the biggest benefits of bitcoin. The blockchain is “extremely resistant to hacking and sabotage in a way that the current financial system really is no,” he said.

Other benefits, Yermack said, include the speed and low cost of transferring.

“It’s much cheaper and quicker than the financial system that we have now,” he said. “Typically, if you pay for something with a Visa card, there’s a fee in the background, paid usually by the merchant, but it drives up the cost of the transaction about 3 percent. There’s no 3 percent fee like that for bitcoin.”

He added: “It’s also quite quick that in terms of transferring money especially across borders sometimes it can take days just to send money from London to New York. But in the case of a bitcoin transaction, it can occur almost instantly, as quickly as the network moves the traffic.”

At its inception in 2009, a bitcoin could be purchased for less than a penny. Since then, the price has grown exponentially, hitting an all-time high of $19,783 in December. The cryptocurrency has experienced extreme volatility recently, leaving skeptics to question its sustainability.

“Bitcoin wasn’t built to handle the volume of transactions that people are trying to do with it,” Grant Sabatier, who runs Millionaire Money, an investment blog, told “Nightline.”

Its volatility makes it difficult to use as currency and is probably better used as a store of value, like gold, he added.

Sabatier, who made more than $1 million in bitcoin, has been advising people against putting their money in the cryptocurrency.

“If you only have $1,500 [to invest], this is not the best place to put your money,” Sabatier said. “This is speculative … it’s gambling. You could lose money. You could make money. But, overall, you need to have a more conservative, better investment strategy for the long term.

“Keep it in perspective,” he said. “View it as a speculative investment. Why would you put your entire investment in something that isn’t backed by anything?”

Gardner, the cryptocurrency evangelist, understands such skepticism but said he believes bitcoin and other cryptocurrencies are here to stay.

“Look at the U.S. dollar,” he said. “It’s backed by our faith in the government to act in our best interest … and it makes sense if you live in the U.S. or E.U. or China. But if you’re in Venezuela, where the bolivar [currency] is going under extreme hyperinflation and the dollar drops every day, bitcoin makes a lot of sense.”

Copyright © 2018, ABC Radio. All rights reserved.

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