Bitcoin 101

Will the money of the future be digitized? Some think so and that is because of the development of bitcoin which is an online, digital currency. If you’re not familiar with the term then don’t worry because you’re not alone. There are a lot of people who still aren’t sure what exactly bitcoin is or what it is all about.

Here is a rundown of what bitcoin is, how to use it and some history of this currency of the future.

What is Bitcoin?

Wikipedia defines bitcoin as “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.” Essentially, bitcoin is a form of digital money.

Bitcoin Coins

Bitcoin has been described as a form of PayPal. They have even begun setting up ATMs where you can cash your bitcoin for cash. Also, more and more establishments are accepting bitcoin as payment. Needless to say, the trend is catching on.

Earning Bitcoin

Bitcoin can be earned by a technique known as “mining”. According to en.bitcoin.it, “mining is the process of adding transaction records to bitcoin’s public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.”

Controversy

One of the controversies surrounding bitcoins is cyber security. Can having a digital form of currency ever be truly safe? Could your digital wallet be hacked into? Bitcoin experts say that it is near to impossible for anything like that to happen of you take the right precautions and don’t give your information out to anyone.

Check out this article from Gizmodo about a $1 million bitcoin heist.

Another cause for concern is the rate in which how bitcoin fluctuates. Bitcoin can fluctuate by 20% some days and it has been said that bitcoin is more volatile than the stock market. You may wake up with 20% more in your account while the next day you’ve lost 20%. A lot of people aren’t comfortable with that.

Fiat Currency

Is our paper fiat currency on its way out? Is bitcoin the wave of the future? After all, how secure and steady is the dollar when the Federal Reserve prints new money every day and essentially creates money out of thin air? Can the big banks really be trusted either?  I personally have never had a problem with a bank but at the end of the day you’re trusting someone else to hold and take care of your money.

From precious metals and stones to paper and plastic, money has evolved in time and we’d be foolish to believe that it would stop changing over time. What is difficult to know at this time is if bitcoin is the right change that money needs to make. Only time will tell and all we can do is watch and wait to see what the courts and society decides.

By Henry H. Hernandez

Henry Hernandez is an entrepreneur from Texas who regularly reads about the economy and money. Henry works as a consultant for a company that sells checks onlline http://www.cheapchecksplus.com/. Henry is on Google+.

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