Bitcoin is a new term compared to most other forms of currency.
Bitcoin is now a real and fairly popular currency, so you should probably know a little bit about it.
When you ask Google what Bitcoin is, this is the first thing you will get:
“Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer Satoshi Nakamoto. It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money.” –From Wikipedia
Basically, a bitcoin is a new form of currency. A means for purchasing certain things, namely, things that accept bitcoins. (OK, that last part was probably obvious, but it’s worth noting since very few things accept bitcoins right now)
It’s important to note, before I continue, that Bitcoin (capital ‘B’) is a system and one “unit” of this type of currency is referred to as a bitcoin (lower-case ‘b’). So there is Bitcoin and there are bitcoins.
What’s the Point?
While bitcoins may not appeal to the “general public”, they are extremely appealing to a number of people.
Bitcoins can be used to make anonymous purchases, which makes them very attractive to certain individuals. They have attracted a crowd of investors as the cost of bitcoins keeps increasing and there are also no fees associated with them during the transaction process.
In short: you buy them, trade for them or “mine” them.
There are several bitcoin exchanges online to buy and sell. You can transfer bitcoins online, similar to how you would transfer cash with a computer or a smart phone.
Bitcoin mining? Wait, what?
This is how bitcoins are originally created, through a process called “mining”.
“With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine. ” –BitcoinMining.com
Once purchased or mined, bitcoins are stored in a digital wallet, where you can send, receive, spend and save them.
Bitcoins are not insured by the FDIC. They are not backed by any physical asset, so they have no intrinsic or physical value (similar to the US dollar?).
Quick Pros and Cons
Overall, it’s your call whether you want to get into this market. There are many risks associated with bitcoins that you should be aware of.
Bitcoins can be stolen if someone hacks into your computer (they are working to make them more secure). If your computer crashes without a backup, bitcoins can be lost. Basically, most of the standard risks associated with computer files also apply to bitcoins.
There are also positives, such as not having to go through a bank and not having a limit on how many bitcoins can be created. The latter could be a downfall as well, if you look at it through the lens of inflation.
The moral of the story is that, like any investment, you should be wise and do your research. Any investment can lose value and bitcoins are no different. Furthermore, since bitcoins are a new currency, they should probably be considered a high-risk investment.
Here are some articles about what is going on with bitcoins right now:
Before you go, it’s also interesting to note that Mint.com (a personal finance management service-that I recommend) is now tracking bitcoins.