Bitcoin: The World’s First Digital Currency

BOSTON - Dec. 23, 2013 - PRLog -- For as long as the Internet has been in existence, so has the movement to develop a ‘digital currency.’ Yet not until recently with the sudden popularity of Bitcoin has such a concept made its way into the lives of everyday people. Considering making an investment in the ‘start up currency?’ Before you open up your ‘digital wallet’ let’s take a closer look at the Bitcoin network to try and make cents of this virtual payment:

What is Bitcoin? According to its website, “Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.” In simpler terms, Bitcoin is virtual money that instead of being managed by a country or government is controlled by a software code. There is no physical currency as with US dollar bills but rather virtual strings and numbers with unique identifiers determined by computers. Bitcoin gets its value through the marketplace as opposed to the traditional backing of physical collateral such as silver or gold. The more people who adopt Bitcoins and become willing to accept them as payment, the greater the value of the currency becomes.

How do Bitcoins work? For individual users, Bitcoin is a mobile app or computer program through which transfers can be sent and received. Behind the scenes, however, Bitcoin operates through a complex public ledger called the ‘block chain.’ When a transfer is made between Bitcoin wallets, a transaction is included in the block chain through a mathematical process called ‘mining’. The mining process ensures that all transactions are verified by the network for authenticity and security. Anyone can process these transactions using the computing power of specialized hardware and earn a reward in bitcoins for the service.

What are the advantages of Bitcoin? Bitcoin’s digital properties make it possible to send and receive money anywhere, anytime. Little to no processing fees are associated with payment with the exception of rushed transfers. Transactions do not contain personal information making for a more secure, controlled payment method than most credit cards offer today. For businesses, Bitcoin makes it easy to expand into new markets where credit cards may not be available or fraud rates prove too challenging.

What are the concerns of using Bitcoin? Bitcoin is still relatively new with software in beta and many features including security and accessibility improvements yet to be released. There is limited currency in circulation making even a small trade have a significant impact on price. Last month the price of Bitcoin peaked at $1,200 only to dip back to $700 two weeks later - a sudden shift representing both lack of stability and overall volatility.

Who’s using Bitcoin? The adoption rate of Bitcoin remains limited yet increasing with a select number of businesses and individuals currently accepting the currency as payment. Tech companies are amongst the most notable adopters with brands such as Wordpress and Reddit now using Bitcoin for some transactions. Individuals have been slower to adopt, however, personal involvement also seems to be increasing with two Tesla vehicles being purchased using Bitcoins in California over the past two weeks.

How do you buy Bitcoins? Bitcoins can be acquired through the competitive process of mining or through itnernational exchanges including BitPay and MtGox. It is also possible to buy bitcoins from private dealers or acquire them as payment from an individual who already possesses the currency.

The big question now is what does the future hold for Bitcoin. According to Bank of America the currency could become ‘a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers.’ Still, critics argue that the virtual currency will fail due to its volatile nature and security risks.