(Image courtesy of: http://www.123rf.com/photo_24569472_bitcoin-word-cloud-with-white-wordings-on-black-background.html)
I often find myself to be overwhelmed by the news some days. There is stuff going on that I have trouble grasping the concepts because it is truly just insane (Stephen Hawking’s new findings may qualify in that category,) or it is just so expansive/intertwined/systemic that it is hard to know where to begin. Bitcoin falls into the later category for me. When I first started digging into Bitcoin, I was all, “F*** this, I’m out!” Crypto currency, mining, currency exchange, networks…..let me just go ahead and not mess with this. But then Bitcoin started popping up in the news more and more, and these days it is to business news what Miley Cyrus and Justin Bieber are to entertainment news, à la Bitcoin crashing and burning miserably. Although Bitcoin is trading at a low point lately ($273.98/BTC according to Mt. Gox, and $628.02 according to Bitstamp, as of the date of publication,) I believe we haven’t seen the end of it, nor Ms. Cyrus, or even Mr. Bieber.
So here’s the abridged version of what you need to know about Bitcoin…Bitcoin is called a crypto currency because according to Wikipedia, it “it uses cryptography to control the creation and transfer of money.” There are these nerds called miners who perform the cryptography necessary to verify and initiate the transaction between the seller and buyer. This is the beauty of Bitcoin right here, the miners act as the intermediaries of the transaction, and see to it that the bitcoins are not double-spent or counterfeit. Mining is become increasingly more complex as the number of transactions increases. Additionally, miners need to have increasingly more computer power to keep up. Miners can receive newly minted bitcoins as well as transaction fees for the work they perform. Once miners have mined 21 million bitcoins, there ends the period where new bitcoins come into the market. The miners will make money on just transaction fees at that point. Mining is not for everyone though. Obviously, you need to be somewhat computer or IT savvy, but these days you also need ridiculously fast computers to keep up with other miners you are trying just as hard or harder than you to correctly “hash” the next block in the Bitcoin “blockchain,” which is the public ledger of all Bitcoin transactions. The transaction is public, but the identities of the buyer and seller are hidden, which made Bitcoin the choice currency for the now defunct Silk Road marketplace.
Bitcoin is a deflationary currency, meaning only a finite amount will ever be put into play. You can buy bitcoins through a mobile device, web application or through wallet software. And soon you will be able to buy and sell bitcoins through ATMs, like, end of this month soon (for Americans that is.) You can store your Bitcoins in the cloud (hot storage) or offline on a piece of paper (cold storage.) Each bitcoin has an address that is made up of around 33 letters and numbers which is used as its primary key or unique identifier.
There are multitudes of online merchants who will take your bitcoins just as fast as those Federal Notes: WordPress, The Sacramento Kings, Overstock.com, Zoo York Snowboards, OKCupid, ETSY and others, just to name some of the big names, and the list is only growing bigger. One thing I read about was that Bitcoin is a great thing for micropayments, which are payments that are less than a dollar. Many businesses are cash-only, or they have some kind of credit card minimum purchase (which I hate so much BTW….like dude, “I just want to buy 1 beer. I don’t want to have to take 2 extra shots just to get my 1 beer cause of your stupid credit card minimum./rant) I don’t know when we will see Bitcoin as a legitimate point of sale currency option, but it will probably be here sooner than later, whether it is Bitcoin or the new hotness in cyber-currencies.
Cameron and Tyler Winklevoss, aka the Winklevii Twins from “The Social Network” are some of Bitcoins most noteworthy investors, who dumped $1.5 million into a place where you can buy and sell Bitcoins, called Bitinstant. Don’t try to go there though, I’m pretty sure the Feds shut it down less than a month ago pending an investigation into money laundering involving Bitcoin by the CEO.
Bitcoin has its fair share of problems, some of which are pretty rough. Recently, there has been trouble with withdrawals from exchange sites, much like the issues customers faced with the online poker sites years ago. There is also the problem of theft by hackers, which prompts some people to use “cold storage.” If your credit card or debit card gets stolen, most financial institutions will attempt to investigate, or at least credit you the funds you are out, but lost or stolen bitcoins are unrecoverable. Regardless of the pros and cons, Bitcoin and its copycat currencies are here to stay, at least for now.