You can’t hold a Bitcoin in your hand, but you can use it to pay for a rapidly growing list of goods and services. So what, exactly, is it?
Look closely, and you might notice websites such as Overstock.com, 1-800 Flowers and even Dell offering a new way to pay when you reach the checkout: BTC. It’s the abbreviation for Bitcoin, the new(ish) “cryptocurrency,” which basically means digital money. That is, a Bitcoin doesn’t exist in the real world, and you can’t hold it in your hand. You store it in a digital wallet on your hard drive or in the cloud, and can use it to pay for a rapidly growing list of goods and services. A negative: because Bitcoins don’t exactly exist, if your cloud storage is hacked or your hard drive is wiped or accidentally thrown away (as happened to one unfortunate man in South Wales), you could be out real bucks.
Created in 2009 by an anonymous person who goes by the pseudonym Satoshi Nakamoto, bitcoin is “peer-to-peer” currency, which means it’s regulated by the users, not by a central bank. So there are no processing fees, but also no regulators or FDIC protection. It isn’t minted, but “mined” by employing powerful computers to uncover blocks of it within complex programming; finders win a bounty (it’s a pricey and very time-consuming process). In the beginning, Bitcoins had little to no value. But now, they’re bought and sold on online exchanges—the biggest is called Mt. Gox—and trading at more than $350 per Bitcoin at last check.
Because it has no country, it’s valid anywhere. It’s also anonymous—you buy and sell using a Bitcoin ID, not your personal info—which is why it’s popular with people who want to purchase things that can’t be traced back to them. That’s also why you may have heard it associated with the purchase of illegal drugs, weapons, or, some say, hit men. But these days, it’s being taken more and more seriously as “real” money that regular people can use to make instant payments anywhere in the world. You can use it both online and in person, thanks to mobile devices (you pay in fractions of Bitcoins).
People are trading in Bitcoins at their own risk— it’s a market in its infancy, and it’s bound to have its ups and downs—it’s not for the faint-of-heart investor. That said, you might think of it as the Travelers Cheques of a new generation. One Bitcoin? Worth almost the price of gold. Your ability to shop without boundaries? Priceless.
Have you used Bitcoin? Would you? Let me know in the comments!