What is Bitcoin?
If you spend a lot of time on the Internet, you’ve probably heard of bitcoin, the online currency introduced in 2009. It is a peer-to-peer open source software that allows users to conduct business without going through third parties. Transactions are recorded in a public ledger called the block chain, with a series of independent network nodes keeping track of exchanges to avoid double-spending because there is no centralized oversight. Because of this, Bitcoin is categorized as a decentralized digital currency, and it is the largest of its kind. There is still some debate concerning bitcoin’s status as a legitimate currency, but the U.S. Treasury confirms that it provides valuable financial services.
How do you get it?
Bitcoins are paid to users who offer computing power to record and verify payments into the block chain, a process called mining. Bitcoins are increasingly accepted by online vendors as payment because fees are less than those charged by credit card processors. Users can send and receive bitcoins to each other with an optional transaction fee. Miners prioritize transactions that pay fees. Users must verify payment using a private key that the network checks against the public key. Bitcoins can be bought online or offline through a bitcoin ATM.
Many mainstream websites have accepted bitcoins as currency since early 2013, including OkCupid, Microsoft, Expedia, and Overstock.com. Non-profits are also beginning to accept bitcoin donations. As of early 2015, over 100,000 companies accept bitcoin as payment.
Bitcoin is highly volatile, eight times more than gold and eighteen times greater than the U.S. dollar. Market insiders attribute this to its newness. Its highest value was $1,242, and its lowest was $0.30. In early 2105, one bitcoin was worth $224.
Pros and Cons
Because it is a decentralized digital currency, or cryptocurrency, bitcoin can be used and accepted anywhere in the world. Transactions are kept anonymous, which is another possible attraction. It has yet to gain much of a foothold in retail transactions, and several banking authorities have warned that its users do not have the protection of refund rights. Because it is difficult to trace, bitcoin is also associated with black market transactions and other criminal activity. Another downside is that it is impossible to access if the private key is lost. Financial experts have given bitcoin a mixed reception, but it seems likely to be an important part of the currency landscape for the foreseeable future.