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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.
Sources:
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