In the past several months, more and more people have been asking me about the stock market, the US Dollar, and just in general where the direction of the economy is headed. One of the questions that seems to have come up more over the past month is what is a Bitcoin? Are these fantasy dollars for those that play in the second life world? Are they coins that you can use at arcades and places like Dave & Busters? Are Bitcoins for real or are they just some other crazy scam that we should all be wary of in the future?
According to www.bitcoin.org, Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system. Confused? Let’s review a little bit further . . .
Bitcoin is an experimental, decentralized digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin using public-key cryptography, peer-to-peer networking, and proof of work to process and very payments (bit miners). Bitcoins are sent (or signed over) from one address to another with each user potentially having many, many addresses. Each payment transaction is broadcast to the network and included in the blockchain so that the included bitcoins cannot be spent twice. After an hour or two each transaction is locked in time by the massive amount of processing power that continues to extend the blockchain. Bitcoin provides a fast and extremely reliable payment network that anyone can use (source-Bitcoinwiki) Still confused?
Remember, currency makes trade easier by eliminating the need for coincidence of wants required in other systems of trade such as barter. Currency adoption and acceptance can be global, national, or in some cases local or community-based. With advancements in technology, more and more currency type transactions are happening through machines and the internet (think- Pay Pal). These transactions, however, often burden us with lots of costs and fees. Consider what it costs to use credit cards, debit cards, ATM’s, and especially electronic based international transactions. Bitcoins, in part, were designed to create a new electronic currency system for two individuals, businesses, etc. to be able to make a peer-to-peer transaction without having a central bank, costly fees, and mutually agreed upon rules.
Even after reading 20 different articles, it is still unclear to me how anybody can actually create new Bitcoins without having some super duper computer skills. Most currency based systems are centralized and controlled whereas the Bitcoin market is open source and decentralized. For now, like most currencies, the value of a Bitcoin is all about supply and demand. With so much discussion happening around the ‘real’ value of currencies like the Euro, US Dollar, and the Chinese Yuan, it is my opinion that the Bitcoin is gaining traction so the largest of countries and small emerging markets could have a methodology to transact business on a universal currency.
I don’t usually like to invest my money in things that I don’t understand. Even for me who is a seasoned professional, it is still hazy in my mind about how Bitcoins will work and the value of the Bitcoins have gone massively up and down in value in the past couple of months. Some have alluded to the notion that Bitcoins are a Ponzi scheme while others will debate that it is the wave of the future. Only time will tell, but maybe the next major on the college degree list could be a Bitcoin minor . . . . what do you think about the Bitcoin?
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