The Basics About Bitcoins

A few years ago you would probably only hear about Bitcoins from IT fundis and professionals in the financial services industry. Today, the Bitcoin buzz is all around and chances are you will hear about if from a friend, colleague or family member if you have not already got the latest about it in the press. In fact you may face gasps and giggles if you dare to ask ‘what is a bitcoin’ in public these days. So here is a quick breakdown on Bitcoins for newbies.

Stack of Bitcoins

Digital Currency and Cryptocurrency

Simply, Bitcoins are a digital currency. This means that it exists in cyberspace and is not the same as paper money or precious metals and stones. Neither is it a stock or bond, nor a commodity in the true sense of the word. Bitcoins are created, stored and traded in cyberspace but does have a dollar value that can be converted into cash in your hand.

Bitcoins are also known as a cryptocurrency. It is not produced or manipulated by any central authority. Instead it is produced by solving complex mathematical problems, also known as Bitcoin mining. New coins are added to the system through mining but the system ensures that the number of Bitcoins will not eventually reach a maximum level, where no more new coins can be produced.

Why Bitcoins?

Depending on your role in the economy, the benefits of Bitcoins may differ. It is transparent, easy to setup and utilize and transactional fees are small in comparison to regular banking channels. However, this is not what the recent hype is all about. Bitcoins have become an investment vehicle that offers new hope in the face of recent global financial scandals.

For the average citizen and consumer, Bitcoins are seen as an investment that is immune to the actions of central authorities that have tried to prop up failing economies. It is not subject to the same instability brought about by economic meltdowns and quantitative easing. In other words, you money is not diluted because a central authority wants to print more money tomorrow.

The fact that your investment is not devalued in this way makes it attractive beyond just the ambit of being a digital currency to trade with through electronic channels. This in turn has created a shift in the market equilibrium price due to the forces of supply and demand further boosting the value of a Bitcoin.

Bitcoins Yesterday and Today

Bitcoins first became operational in early 2009 but was fraught with problems that allowed for unlimited Bitcoin mining. However, the entire system has undergone rigorous development that now makes it almost impossible to defraud. Back in the day it was only traded by a limited number of vendors and users until larger corporations accepted it as a form of payment around 2012.

The Bitcoin system was developed by Satoshi Nakamoto – a person or group who to this day remains unknown. By 2011, a Bitcoin ranged in value from 30 US cents to a few dollars. It momentarily rose to US$32 and fell back to $2 per Bitcoin. By mid 2013, it surpassed the $500 mark although it is believed to be largely driven in recent times by speculators.

Today Bitcoins are being utilized and traded at phenomenal rates that have led to the widespread media attention of late. It can be used to buy goods and pay for services from thousands of merchants and providers across the globe. It is still making its mark as a true currency and there is no saying when the hype, and concept, may end – if ever.

Whatever may come of Bitcoins, it has revealed a growing dissatisfaction in the monetary systems across the globe by the very engine of any economy – everyday people who work hard for a living but have little say in financial policy. The fact remains that Bitcoins are not going anywhere for the time being and have started to rattle the markets by the thought that conventional currency could possibly be abandoned in a digitally connected world, although nowhere in the foreseeable future.

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