What Is Bitcoin? Bitcoin is the strange new currency catching the interest of investors and individuals looking for a safe way to buy online. Developed in 2008, it has got a lot of coverage in the last few years. Some is negative, some positive, but the usual reaction of consumers is puzzlement.
Its anonymous creator, or possibly a group of creators, uses the pseudonym Satoshi Nakamoto. He published a paper in 2008 describing the theory of Bitcoin, an entirely virtual type of currency. Within a year, they were in use.
One popular idea is that Nakamoto developed the idea because he wanted to find a safer way to trade after the global financial meltdown in 2008.
The first known purchase made with the new currency was for takeout pizza in May 2010, at a cost of 10,000 Bitcoins.
Bitcoins are not physical like gold, silver or paper money. Instead they are a virtual type of currency, created online by a complex method called mining. Using a computer, a miner solves puzzles, competing with other miners worldwide.
The goal of a miner is to produce a number used by the international Bitcoin network as part of the validation process when Bitcoins are traded or used to buy goods and services. There is no third party authorizing transactions, as happens with credit cards.
The current rate of creation is set at 25 Bitcoins for each 10 minutes of computing time. By the year 2140, according to those who handle Bitcoins networks, the maximum number in circulation will be 21 million.
Since the currency exists solely in the virtual world, the Bitcoin system is decentralized. Using them for purchases or investing doesn’t require a third-party like a bank or a credit card processor, making Bitcoins anonymous.
If the Federal Reserve or banks were closed tomorrow, shoppers would have a difficult time buying goods online or offline with credit cards. They would have trouble getting access to their money stored in banks. That’s because a third party is required to get access dollars, pounds and euros and to complete many transactions with them.
This is not the case with Bitcoins, simply because there is no central depository. Purchasers and traders using this new currency are identified by their Bitcoin wallet address, a random string of letters and numbers that is easy for the owner to change. There are no credit card numbers for thieves to steal.
Bitcoin transactions are often less expensive because there are no processing or bank fees. And since two people engaged in a transaction don’t need to depend on banks, processors or other regulatory agencies, it is usually faster and easier to use Bitcoins to exchange goods internationally.’
They are becoming a common form of currency online. Hotel giant Howard Johnson is accepting Bitcoin, as do a number of other hostelries.
Regulation of Bitcoins is still in its infancy. Many news stories report their use in drug and gun deals and other shady ventures. In the last two years one large Bitcoin exchange self-destructed, taking investor’s currency with it.
Bitcoins have gained traction as a viable alternative to traditional currencies, especially for online purchases. But if you decide to try them out, caution is advised. Research the topic and deal with reputable shops and exchanges. Don’t send money online to someone offering to sell you Bitcoins. It could easily be a scam.
