Bitcoin: An Introduction
There’s still quite a bit of debate on how to actually classify bitcoin, but the word that sums it up most simply is “digital currency”. “Cryptocurrency” is also a common term used to describe them. Unlike dollars, checks, and credit cards, bitcoin don’t exist in physical form.
They’re not printed like money, they’re “mined”. The subject of mining is a whole other topic in itself, but the basic idea revolves around how bitcoin transactions are recorded. Since the money doesn’t physically change hands, it relies on extremely accurate and up-to-date ledgers.
Bitcoin miners use powerful computer systems to help the process along by verifying groups of transactions and storing them using complicated mathematical formulas. As a reward for their processing power, they get some digital currency. Cool, huh?
Bitcoin can also be purchased on exchanges, where users buy and sell it. Since their values are constantly fluctuating, traders have the opportunity to make a little cash, similar to buying and selling stock.
There are also places where you can pay cash for bitcoin, then have it transferred to you digitally. This is offered by individual owners as well and can even be done via smartphone apps.
Once you’ve got some, you’ll store them in a digital wallet. This can be on your computer or in the cloud, both of which have advantages and disadvantages.
On your computer, you’re vulnerable to typical technical problems, like viruses or file deletion. In the cloud, however, there are thieves to worry about. Hackers or even the sites themselves can make off with your hard-mined digital money if things go wrong.
Advantages of Bitcoin
So what’s the point? What’s wrong with the money we have now?
Well, for one, bitcoin transactions are completely anonymous. Only wallet IDs are included in the transaction logs, so there’s no paper trail that can be traced back like with credit card payments. This creates a more private method of buying goods or services online.
Now, this does lead to some illegal activities, as you might have heard. There are black markets hidden in the deepest recesses of the internet, where users buy and sell drugs, commit fraud, and worse.
But that’s not the whole story. There are other reasons people would want to remain anonymous, such as simply valuing their privacy and wanting to fight back against the government’s efforts to encroach upon it.
Another advantage of bitcoin is that it is universal. Forget dollars, euros, yen, and pounds. Bitcoins are just bitcoins, which makes it a lot easier to conduct business internationally. No more dealing with currency exchanges and worrying about their accompanying rates.
They’re not regulated by any government and more difficult to track for tax purposes, as well. The currency is decentralized and not controlled by banks or any other institution.
For domestic purchases, businesses can avoid costly credit card fees by opting for the much lower transaction fees on crypto currencies.
Where Did They Come From?
Bitcoin was first proposed in 2008, with it invention credited to Satoshi Nakamoto. The thing is, the name is only an alias. It’s still unknown who exactly came up with the digital currency and whether it was an individual or group.
A few months later, in early 2009, the first bitcoin software was introduced, with the first ever transaction coming just days after. In October, exchange rates sat at $1 to 1,309 bitcoins.
For the next few years, mining slowly became more difficult, while the value of bitcoin steadily rose.
2011 was the year the currency really started to take hold, as the bitcoin reached $1 and people across various industries really began to take notice.
Several new exchanges were opened to meet demand for other countries and national currencies. Late in 2011, values had gone over $30 per bitcoin, a massive increase. This made the market a target, since early adopters were now holding small fortunes in their digital wallets.
Not only were individuals hacked and stolen from, so was the MtGox exchange, the biggest market on the net. Their databased was infiltrated and leaked, plus an admin account was compromised and used to sell hundreds of thousands fake bitcoins, driving down the overall price drastically.
The trades were fortunately reversed, but these issues kept values down over the next two years, before they exploded in 2013, hitting $100 in April and breaking $1,000 just over six months later.
A Look To the Future
There’s no way anyone could accurately predict what the future holds for such a new and volatile currency, but bitcoin continues to gain traction around the world, with more and more countries getting into the mix and the number of vendors accepting them rising. Other cryptocurrencies have popped up in the meantime, but none of them have nearly the support that bitcoin’s achieved.
Who knows if they’ll ever gain total mainstream acceptance or whether the government will eventually attempt to regulate the market, but it seems safe to say that bitcoin is here to stay in some shape or form.