If you have not yet heard of bitcoin, then you have not been paying attention to any financial news of late. Relatively unknown a year ago, this digital currency is making the headlines because of it’s recent hike in value. In January of 2012, bitcoin was trading at a mere $13, compared to now, a bitcoin is trading at $380. Clearly, this has captured the attention of investors and speculators alike, many of whom are asking the same questions. What is bitcoin? How do I acquire it? Is it a safe investment?
What is Bitcoin?
Bitcoin is a transferable, peer-to-peer virtual currency. It is securely and instantly transferred between two parties at any time, anywhere in the world. Created by a developer in 2009 under a pseudonym of Santoshi Nakamoto, it allows it’s owners to store virtual currency in digital wallets, either on the web or on a computer. Trading in this currency can be done in a completely anonymous fashion, and involved no merchant services or banks, and often time no transaction fees.
Even if bitcoin initially was traded by very few merchants, as it has spread, more and more businesses are using it everyday. From companies like Overstock.com and Amazon to mom and pop coffee shops and convenience stores, thousands of businesses have begun accepting bitcoin as an viable and accepted form of payment.
Bitcoin is also a peer-to-peer payment network, not just a currency. It is an open source network comprised of a ledger and database called the “block chain”, which stores every single bitcoin transaction. Even though the public can view the block chain at any time online, identities of participating parties who make them are kept completely anonymous. Only wallet IDs, or the “address”, are identified, not that identities of buyers and sellers.
Bitcoin can be acquired in various ways. It initially came into existence through a process called “mining”. By use or powerful computers, miners connected to a network to solve complex mathematical calculations. Thousands of these mining rigs around the world are working around the clock, competing to get a piece of a “block” of bitcoins. At present, a block equals 25 bitcoins, which is awarded every 10 minutes, with over 12 millions total existing bitcoins, and more than 21 million ever mined.
24 hours, 7 days a week, exchanges are busy trading bitcoin, as an alternative to minding, since it has become more expensive and difficult for average persons to obtain. The price of bitcoin constantly fluctuates, and can have widely different prices from one exchange to another. This creates an opportunity for users to make money in computer trading. Two popular bitcoin exchanges used today are Mr. Gox and Coinbase.
By simply setting up a bitcoin wallet, anyone around the world can begin accepting bitcoin as a viable mean of exchange for products and services. The virtual currency is transferable electronically through email, QR code, or using a bitcoin wallet address online.
Investing in Bitcoin
One should be cautious when starting to invest invest in bitcoin, as fluctuations in price vary 10-20% in only a few weeks, and sometimes even in days. The market is still considered speculative, and can expose you to risk. While some have realized enormous profits by investing in bitcoin, it is still unknown as to what will happen to the price moving forward.
Bitcoin has a few obstacles to overcome before becoming a serious, long-term competing currency. A few of the factors that might prevent its wide-scale adoption are lack of understanding by the general public, price volatility, and increasing government regulation. Some continue to argue, perhaps rightly so, without wide-scale acceptance and use, bitcoin will fail.
Yet, there is attractive investing potential in its use, and many reasons to be optimistic. As the current trend show, and if you believe it will continue in the same direction, with the grow of peer-to-peer networks and decentralization of various systems, especially in the area of communication and commerce, perhaps you should consider investing in bitcoin. Or, if you are one who cares and cherishes financial privacy or anonymity or think it’s a growing trend for more around the globe, either consumers or businesses, you should also consider investing in bitcoin. Or perhaps you simply do not want to miss out on the next exponential jump in price, where your investment would return high yields, another potential reason to consider investing in bitcoin.