So, what is bitcoin? Bitcoin is virtual money—an entirely digital currency. Transferred via a peer-to-peer payment system that has absolutely no involvement in any particular government, it is equally uncontrolled by any sort of federal force, making it one the freest forms of payment to move into circulation.
Bitcoin hit the market in 2009 as an open source software, created in order to give consumers a currency that wasn’t bound by traditional currency issues—bitcoin doesn’t have to have a matching amount of gold stored away somewhere in order to be used, and there’s no worry about it wearing out and needing to be replaced, since it doesn’t physically exist (traditionally; there have been movements toward potentially printing it out and allowing for bitcoin ATMs).
The lack of governmental control also appealed to people who were drawn to the newborn cryptocurrency. Nearly all currencies in existence are tied to a particular country, and trading or buying between countries means changing money from one currency to another . . . but bitcoins are all the same, all around the world, and they allow for a new brand of person-to-person international trading using digital, bitcoin-specific wallets.
In order to trade bitcoins, you’ll need a virtual wallet with a very specific code created from a random string of letters and numbers. Coins are sent directly from a person to the wallet.
Bitcoins aren’t created by any specific one person or for a specific event. They are “mined” by users who are willing to loan the computing power and time to process bitcoin transactions from all around the world. These miners are rewarded with newly minted bitcoins.
There will, however, be a limited number of bitcoins, so miners can’t simply mine and mint indefinitely. Bitcoin has hard-wired a 21 million bitcoins cutoff, and once that 21 million is hit, no more will be minted, and mining will no longer work. At the time of publication—March 2014—there are just over 12 million bitcoins in circulation, and the number has been increasing steadily since March of 2013.
In the beginning, bitcoins were traded freely, and they were worth little. In 2011, bitcoins were worth between $0.20 and $2.00 per coin, and most often were used to pay for services and goods from other computer users who were “in the know”–usually gamers or people who offered computer services.
But in late 2012, bitcoin began to catch on. People outside of the cryptocurrency fanbase were starting to realize its potential, and though controversial—the FBI, among others, led investigations to ensure bitcoin users weren’t committing fraud—bitcoin continued to rise in price, hitting $266 in April 2013.
In May 2013, Forbes staff writer Kashmir Hill did an experiment: she lived on bitcoin for one week, paying for absolutely everything using the cryptocurrency. What she found was a fanatic community that was rapidly growing and expanding into the general economy. For example, she found several delivery services who accepted bitcoin as payment, a service that accepted bitcoin in exchange for gift certificates to local restaurants, and enthusiasts all over her city who were willing to accept bitcoins for things like rides, bicycles, and even groceries.
Thanks to her experiment, bitcoin’s popularity skyrocketed, cultivating interest from even the non-tech-savvy.
This is reflective of bitcoin’s slow creep into the American economy. Though it hasn’t gone mainstream the way debit cards did—and likely never will—a quick “bitcoin in [city’s name]” will get you rosters of local restaurants, shops, and services that accept bitcoins as payment. And that number is growing every day!
There are valid concerns with bitcoin’s boom-and-bust style of growth. That $266 it hit in March 2013 dropped to $50 a couple months later, and bitcoin still fluctuates. You can find bitcoin on almost every city’s Craigslist site, with prices ranging from “at market” to $1000 per coin.
Regardless of these concerns, popular “real life” places are beginning to accept bitcoin, and don’t look to be stopping any time soon. The University of Nicosia in Cyprus recently became the first university to accept bitcoin as payment for tuition, and popular shopping website Overstock.com accepts bitcoin as well.
Bitcoin is new and in flux. New—and worth keeping an eye on.
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