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What are Bitcoins and What is Their Future?
What are Bitcoins?
Bitcoins, as the name suggests, is a form of money. It is basically electronic money that is independent of traditional banks and banking methods. As was mentioned, these coins came into existence back in 2009 and were created by a man named Satoshi Nakamoto - a pseudonym - an unknown entity that very few people have spoken to. Since 2009, his bitcoins have become one of the most prominent digital currencies. However, just last April 2011, Satoshi Nakamoto has removed himself from the Internet and it is said that he is now busy with “other things.” Some might even call this guy shadowy since he stated that he came from Japan but as it happens, there is no Japanese bitcoin page.
As a virtual currency, it relies on a network of computers that work together to form complex math problems. This is all part of a process that works to verify and record details of every transaction made with the use of bitcoins. Unlike other traditional forms of currencies, wherein a bank decides the amount of money produced based on inflation rates, there is no central authority to govern the number of bitcoins available. However, just like other currencies and commodities, the value of bitcoins depend on how much confidence people have in it.
How are Bitcoins Created?
It is really quite interesting to note that these bitcoins are not really made up of anything but numbers in a computer. The big question here for most people who are new to the idea of bitcoins is where do they come from? For one, the system was made in such a way that it functions as a reward to computers that do the work of verifying transactions (a crucial piece of work) and the occasional payoff is the rewarding of new bitcoins. This process is what they call “bitcoin mining.” The growth of the value of the currency has resulted in some rather unexpected but nonetheless impressive developments in the form of souped-up chips and computers specially designed to handle all the cryptographic calculations used for bitcoin processing. According to Blockchain.info, there are currently 12.4 million bitcoins in “circulation” and they are worth a grand total of $6.2 billion.
How are Bitcoins Used?
Experts say that this virtual currency could eventually be the preferred method of online consumers for buying things and for other online transactions. In fact, some online retailers like Overstock.com and other smaller physical stores accept bitcoins as payments though it is not yet that widely used. Critics of the Bitcoins state that it is far too volatile to be widely adopted and they also warn that given the lack of regulation with bitcoins, it may also be used for nefarious transactions like buying illegal firearms and paying for illegal drugs.
Where Do People Use Their Bitcoins?
- Online spending
- Transfer them to a wallet service in their private computers
- Convert them to cash simply by selling them in an exchange
- Sell them
- Save them
There is no hard and fast rule as to how these bitcoins should be used. Most of the time, they are treated like conventional money and people can use them as they want to. The beauty of these coins is they can be transferred from person to person and they never have to go through a bank. What this means is you pay lower transfer fees and you never have to worry about your bank account getting frozen.
Once you have your bitcoins, you can store them in a digital wallet. As soon as your transaction goes through, an electronic signature is detected and the transaction will be verified in a few minutes by a bitcoin “miner.”
How Volatile are Bitcoins?
The volatility of the bitcoin was mentioned earlier but just how volatile is this digital currency? According to the online exchange store called Bitstamp, the value of bitcoins has skyrocketed from $30 per coin a year ago, to $1,100 just last December. The reason for this spike is due to people becoming more aware of its existence and speculators jumped at the chance to make money on the highly volatile market.
Growing attention from regulators has affected the price of these coins and so have growing concerns about its susceptibility to fraud. This newly gained attention has caused the value of the bitcoin to spiral to just $530 as of February 2014. To make things even worse for the bitcoin, its price is also dependent on the exchange.
Where Do You Buy Bitcoins?
Buying bitcoins is a bit tricky because the whole process is very secretive. If you are to buy bitcoins, you have to undergo an extremely anonymous process which is rather difficult. Below are two ways you can buy bitcoins:
- Money transfer - this is the most widely used way to buy bitcoins. What needs to be done is to provide an exchange with your bank account information so you can then transfer money into an account made for bitcoins.
- Cash - this is another method of buying bitcoins though it is the less popular method. With this, you pay money to an intermediary like Moneygram and they deposit bitcoins into your account.
It is interesting to note that every 10 minutes, there are about 50 more bitcoins that are added to the network but this isn’t a pace that you should expect to last forever. The plan is for the production rate to slow down to just 25 bitcoins every 10 minutes for the next 4 years and will eventually taper off to 12.5 coins every 10 minutes in the years that follow. You might wonder what this cap is all about and the fact of the matter is there is a limit to the number of bitcoins that makers plan to put into circulation and that limit is 22 million coins.
What is the Future of Bitcoin?
Last February 2014, the world was shocked when they realized that Mt. Gox, one of the biggest exchanges to deal with bitcoins, stopped trading. This was a rather large blow to a digital currency that is still struggling to be legitimate and it was also a massive blow to investor confidence.
According to bitcoin critics, the failure of Mt. Gox is further proof that bitcoins are far from perfect and it means the digital currency is not at all ready for widespread use just yet. They also point to hacking attacks in other exchanges as further evidence to support their conclusion.
The supporters of bitcoin say though that it is far too early to count out bitcoins and other digital currencies just yet. They also state that new bitcoin exchanges and other startup companies that are working to make bitcoin mainstream are manned by known financial experts and veteran venture capitalists. In fact, many advocates of bitcoin are still holding up hope that it can eventually become the digital currency of the future and will steer clear of intervention and control of governments.
It makes sense that that is the goal of bitcoins because while little is known about the shadowy figure behind its existence, some reports have it that the inventor was a bit anti-government but it still remains to be seen whether or not the bitcoin actually becomes the currency of the future and whether or not it will actually stay out of government hands.