Mystery digital currency Bitcoins attract dabblers
Friday , January 17, 2014 - 12:44 PM
It’s not a coin. It’s not really a currency, but it is classified as a form of cryptocurrency. The media loves to feature piles of shiny gold coins when they write about Bitcoin, but the so-called coins are really nothing but encrypted software that exists only in the digital realm.
Bitcoin was introduced in 2009 by an anonymous hacker and is not backed by a central bank or government. Forget the U.S. Mint, this cryptocurrency can only be created by a computing process known as mining.
Its legal standing varies in different parts of the world. The U.S. government has said it has the right to regulate Bitcoin as it does our dollars, but so far, it has steered clear. China has banned its financial institutions from trading in Bitcoin, and in Thailand, Bitcoin is illegal.
So if it’s not real money, what is it? Bitcoin is more like a security, but unlike with stocks and bonds, you can use Bitcoins to buy things, both online and from a growing number of retailers. Most people purchase Bitcoins from an exchange, although it is possible to earn Bitcoins by solving complex mathematical problems ‒— solve a problem, get a coin.
There are about 12.2 million Bitcoins in circulation, according to Bitcoincharts, an online resource that provides financial and technical data, such as trade volume. The anonymous creator of the currency capped the number of total possible Bitcoins at 21 million.
A single Bitcoin at the start of 2013 was valued at $13. One year later it stood at around $800 a coin. Compared to traditional currencies, Bitcoin is held by very few individuals. In fact, only 10,000 people own 75 percent of the coins with about 1 million people splitting the balance. Currently, 90 percent of Bitcoins are hoarded ‒— stashed away by people who believe their “investment” will increase in value.
Unlike legal tender or securities, Bitcoin is anonymous, meaning there are no identifying markers on the “coins” to differentiate one from another. All transactions are encrypted, and thereby, virtually untraceable. If that conjures up visions of nefarious dealings, you’d be right ‒— Bitcoin is accepted by black market dealers for drugs and weapons. But legitimate companies have begun accepting Bitcoin too.
For instance, you can use Bitcoin to buy new bedding from Overstock.com, pay for your Wordpress blog and buy a ticket to space via Richard Branson’s Virgin Galactic.
According to Overstock, Bitcoin has several advantages over credit cards, namely no one can process unwanted or unnoticed charges and you are not required to provide sensitive or personal information with a Bitcoin transaction. For retailers, it can mean slashing transaction costs compared with taking credit cards.
For the curious, here’s how it works. Putting mining aside, which is a time-consuming, computer resource-intensive operation, let’s say we want to buy some Bitcoin from an exchange and later pay for a meal with it. Set up an account at Coinbase.com, link your bank account and buy a Bitcoin. If you’re shopping online, that’s all you need to do. Select “Pay with Bitcoin” when you are checking out, and your payment will be converted from dollars to Bitcoin and deducted from your Coinbase account.
However, if you plan to pay at a restaurant, you’ll next download a digital wallet app to your smartphone, such as Coinbase for Android phones and Gliph for iPhones. You’ll sync the app to your account and use it in the restaurant. Depending on the merchant, you may swipe a QR code to initiate the transaction or pass the wallet across a special machine. If you use the Starbucks app or any other NFC app, you’ll be familiar with the process. So far, there are only a handful of merchants in Utah that accept Bitcoin, but the list is growing. See a map of local places where you can spend your Bitcoin at BTC Utah (btcutah.com).
Keep in mind that the exchange rate of Bitcoin can fluctuate ‒— your $10 burger and fries could cost twice that by the time you’re finished eating, but then again, it might cost less.
Leslie Meredith has been writing about and reviewing personal technology for the past six years. She has designed and manages several international websites. As a mom of four, value, usefulness and online safety take priority. Have a question? Email Leslie at firstname.lastname@example.org.