Geek Girl Report: An Experiment In Digital Currency – The Ins and Outs of Bitcoin
Gong to an online-only model of business can sometimes be risky, but as Internet giants like Amazon and eBay proved, it can also be a huge success. But can an entirely online-only currency be just as successful? Well, that is exactly what Bitcoin is trying to do. You may have heard of Bitcoin in passing, but aren't too sure about what it's all about, how it works, or why it's even a good idea. Admittedly, it's a pretty lofty and somewhat complicated concept, but I'll explain it best I can. So, here's a quick rundown on what Bitcoin's all about.
What is Bitcoin?
Simply put, Bitcoin is a type of digital currency, a strictly online form of payment, that can transfer money directly from one person to another without a middle man. Bitcoin has actually been around since 2009, but has been steadily gaining attention in recent years. It is decentralized, meaning that there it is not regulated or controlled by any one governing body. Another unique aspect of Bitcoin is that it is all completely anonymous. All purchases are kept on a public ledger, but that ledger only contains the wallet IDs of buyers and sellers; no names, no credit card information, and virtually no way to trace payments back to an individual.
The way Bitcoins are created is also very unique. Bitcoins are created through a process called "mining," where miners use powerful computer to solve complex algorithms. Every time a miner solves an algorithm, they are rewarded with the currency, which is then added to the money supply.
How does Bitcoin work?
Bitcoin functions like a peer-to-peer file sharing network, only instead of sending and receiving files, you're sending money. Every Bitcoin user has a "digital wallet," where they Bitcoins are kept either on their computers or in the cloud. When you make a purchase with Bitcoins, the money is sent directly to the other person, similar to when you wire someone money. In addition to receiving Bitcoins through mining, you can also acquire them either through a Bitcoin exchange, or by sending and receiving them from other users via a computer or the Bitcoin mobile app.
What are the benefits to using Bitcoin?
One of the most highly-touted advantages of Bitcoin is that it puts you in complete control of your money and your transactions. As I mentioned before, Bitcoin has no central authority, is not regulated by any major bank or by the government, and the rules for using it are set solely by the market. This means that two people anywhere in the world can make instantaneous purchases, with no fees, no political interference, and no messing with a middle man like a bank or third-party system like PayPal. Also if you prefer real money, you can also trade in your Bitcoins for cash, just like trading in yen for dollars, for example.
What are the drawbacks?
As with any new technology, there are a few risks involved with Bitcoin. One of the biggest concerns right now is the instability of the currency itself. Since the rules for using Bitcoin are set by the market, as I already said, it makes the currency extremely sensitive and volatile. Right now, the value of Bitcoin is increasing and increasing, but with how unstable the markets can be, a sharp drop in prices could occur at any time. And, if and when the Bitcoin bubble bursts, it could leave a bunch of people with virtually nothing, literately. Online security, the lack of regulation, and the anonymity of purchases are also causes for concern.
Right now, it's hard to say what will become of Bitcoin. There are not many places accepting Bitcoins at the moment, and several governments have expressed unease about the unregulated currency being accepted in their countries. Even if everything goes well and it really takes off, it will still be a long while before we're paying for dinners and movies and the like with Bitcoin. All that being said, it's certainly an interesting concept, and definitely something to keep an eye on. If you want to find out more about Bitcoin, check out their their official website at bitcoin.org.
Be sure and check out The Geek Girl Report every Tuesday morning, only on KFYO.com. And be sure to follow me on Twitter as well: @ArielWalden214.