The world of finance, until recently, has been a hazy mystery to me. So many variables, so many things to comprehend that always kept fluctuating like the ups and downs of the stock market. A major component to understanding the world of finance is being current on your financial news. If you’ve been doing that properly then you’ve certainly heard of the sporadic and provocative nature of Bitcoin. If you’re not familiar with the digital currency, brace yourself, there is a lot to comprehend. While Bitcoin is not the first currency of its kind, it’s the first time an online currency of this type has gained so much media attention.
What are Bitcoins?
Bitcoin is a digital currency that was created by Satoshi Nakamoto, although most believe that’s just a pseudonym for the man, woman, or group of people who created it. The New Yorker reported Nakamoto was completely unheard of before the launch of Bitcoin, but made numerous posts throughout 2010 about the currency in perfect English using an untraceable website and email until vanishing. Bitcoin was launched on January 3, 2009, as a decentralized form of currency treated like a digital natural resource. There are 21 million bitcoins in total, and approximately half of them are in circulation right now. The rate at which they are released is controlled through “mining.” After an extremely complex algorithm is cracked through a program, 50 more bitcoins are released into the market. This is a very brief summary of a very intricate process, and I’m certainly glossing over important aspects of a bigger picture. If you’re a visual learner, this infographic breaks down the Bitcoin purchase process pretty well, or if videos are your thing, this short video provides an easy-to-digest summary of the currency.
What Can You Do with Bitcoins?
At the start and initial rise of Bitcoin, as the previous video references, most purchases were made on the “Dark Web.” Through a program called Tor, users could remain anonymous and purchase narcotics (amongst many other things) with it, but not all of the spending was bad. Once Bitcoin started getting used more and more, exchange rates to country’s currencies were included with it and it began to gain some ground. Now that it’s gained more users and attention, many are jumping on the Bitcoin bandwagon: the publishing program for the Quicken Loans Zing Blog, WordPress, accepts it as payment and certain businesses allow it as its exchange rate has become more comprehensive. Bitcoinstore.com, as the title would suggest, allows users to buy a number of electronic goods and other products exclusively through the digital dollars. Additionally, one early user of Bitcoin pays his attorney, landlord and virtually everyone else with it. Can it be used at a McDonald’s or 7-11? Not right now, but vendors and merchants are beginning to accept it as a nation-less currency more and more.
Is Bitcoin a Sound Investment?
The short answer is: it depends on who you ask. The whole reason Bitcoin has garnered so much media attention over the past couple of months is due to its rising stock prices. It kept this attention because the Bitcoin market crashed last week, halving its value in just six hours. At the time this article was written, Bitcoin’s shares were hovering above $63 USD, but they’ve been as high as $260 a share. The recent bubble burst on the share price has left many wondering if Bitcoin is just a fad, a flash-in-the-pan experiment, but Bitcoin supporters are encouraging other investors to hold on to their shares and ride this out via sites like Reddit. Since the crash happened, the divide between enthusiastic supporters and critics of Bitcoin have only become more vocal: opposers say the crash shows that Bitcoin is unstable in nature and is not a viable currency, while followers say as long as shareholders stay with it and don’t cash out at the first sign of the market dipping, then there’s a chance Bitcoin can be treated as a legitimate currency. Perhaps the most prominent investors in Bitcoin have been the Winklevoss twins, Olympic rowers and the men who sued Mark Zuckerberg after he allegedly stole the idea for Facebook from them. The twins claim to own 1% of all Bitcoins, valued at $11 million (at the time the source article was written). Their involvement adds a certain prestige to the volatile image Bitcoin has, but much like the early days of Facebook, no one knows if this thing is going to succeed.
If you do decide to invest in Bitcoin, best of luck. There is still half of the Bitcoin market left to be mined but the competition and risks are still there. The market is in a sort of transitional period, where it seems that the success and longevity of the “coins” will be determined in the next couple of weeks or months. In either case, if you’re considering investing in this grand experiment, do your research thoroughly before you do.
Have you had any experience with Bitcoin, or questions on how it works? Please leave a comment below.