While the “origin and motivation” behind Bitcoin is a bit of a mystery, it isn’t surprising that the recent global financial crisis has caused many tech enthusiasts to become enthralled with the idea of having a new digital currency. But is bitcoins truly the new big thing?
A person or group, which goes by the name of “Satoshi Nakamoto,” launched Bitcoin in 2009. Bitcoin is an international, digital currency, a peer-to-peer cash system that cuts out the middleman (like banks and PayPal), allowing consumers to buy directly merchants. It’s not controlled by a central authority, like the U.S. Federal Reserve. In the beginning, bitcoins appealed to techies, some libertarians, and those who are generally interested in the concept of digital currency. But recently, the enthusiasm is spreading.
So, how does it work?
You download the Bitcoin client software and you are given a bitcoin address (with a public and private key) and a cryptographic signature in order to exchange bitcoins. All of your bitcoins are stored in a digital wallet. When you make a transaction the software goes through a “mining process,” making calculations and finalizing the transaction. You can buy Bitcoins and exchange them for other types of currency. And unlikely U.S. dollars, there will be a set number of bitcoins (21 million). The value of bitcoins has increased in a short amount of time. At the beginning of this year, 1 Bitcoin (BTC) was worth $13.51 (USD). Today, 1 Bitcoin (BTC) is worth $100.15 (USD).
What can you buy with your bitcoins?
You’d be surprised at how fast this digital currency is catching on. If you’re willing to do some research you’ll find that you buy lots of things, from groceries to a guitar. You can use bitcoins to purchase gift cards for stores like Lowe’s, Gap, and Burger King. You can also buy luxury items like a Baldwin M2 Baby Grand Piano for 153.374 BTC or $15,500, a 2012 BMW M3 for 630.319 BTC or $63,700, and even an ocean-view condo in the Bahamas for 5,442.311 BTC or $550,000. Bitcoins were even used to pay for fertility treatments, making this infant the world’s first Bitcoin baby.
While this new digital currency has definitely taken off, there have been some setbacks. For instance, the value of Bitcoin isn’t stable. Earlier this year the bitcoin experienced a bubble, much like the U.S. housing bubble of 2008. The bitcoins price rose from “$20 in February to $266 on April 10th and then dropped on April 11th, bringing the price down more than 75 percent.” Though bitcoin has since stabilized there’s another problem as well. Some people fear that bitcoins may be used for illicit transactions, since this currency is hard to trace.