Bitcoin?
What in the heck is a bitcoin? This new form of currency has been in the headlines lately, mostly due to stories about its popularity amongst the online underworld, as well as for its volatile value. But the bitcoin may be poised to become more than just a passing trend. This so-called crypto-currency, once favored by a certain shady element, is growing more mainstream, leading some — such as The Economist — to describe is as the “internet of money.”
Here’s the lowdown.
What is Bitcoin?
In a nutshell, bitcoin is a virtual currency that exists only online. Created in 2009 by… well, no one knows exactly, but rumor has it that the bitcoin was designed by a mysterious someone using the alias Satashi Nakamoto.
Bitcoins are unregulated by any sort of bank, Federal Reserve or central authority. Instead, transfers take place in a peer-to-peer network and trading happens in exchanges such as Mt. Gox, a Tokyo-based exchange officially known as “Magic: The Gathering Online Exchange,” which has been in the news lately after losing millions in investors’ funds after alleged cyber attacks.
Bitcoins are created through a complex mathematical process known as “mining.” Mining involves solving complicated puzzles; whoever gets the answer first is rewarded with, you guessed it, more bitcoins. The total number of bitcoins, which isn’t expected to be mined until 2140 or so, is expected to reach almost 21 million.
How do Bitcoins Work?
People can invest in bitcoins on an exchange — such as the ill-fated Mt. Gox — or obtain them in online transfers as payment. Their anonymous nature has led the bitcoin to become a favored currency among those involved in, shall we say, less than legal dealings, in large part because the cyber-currency is virtually untraceable. Its unregulated nature also appeals to those with a libertarian bent, who prefer to cut the government completely out of their financial dealings.
Bitcoin owners keep their currency in a virtual wallet on the cloud or in a personal computer. These “savings accounts” are not insured by the FDIC.
While the currency has had a tumultuous start, many predict that it will grow in popularity. Several start-ups are working on program to bring bitcoin applications to the market. However, as government agencies continue to apply scrutiny in areas such as regulation and taxation, it’s doubtful that bitcoin’s Wild West era will last forever.
Listen below to Win Damon and I as we chat about Bitcoin on FM 106.1 WNBP in Newburyport, MA.