In 2008 a paper was presented to a cryptography mailing list that captured the attention of that community. It presented a concept and a structure for developing a peer-to-peer cryptocurrency that could be used online and used anonymously. Satoshi Nakamoto was the pseudonymous author who knows a great deal about economics, computing and cryptography. This virtual currency he or she proposed could make purchases and serve as online cash. Today this virtual currency has become a reality in the form of Bitcoin and currency speculators are catching Bitcoin fever.
What is a Bitcoin?
A Bitcoin is a peer-to-peer cryptocurrency. The Bitcoin does not actually exist as a real object. It exists only in a computer file as virtual currency. No single computer anywhere controls this currency or its file. Payment processing is done by a network composed of private companies. Some of them are specially created for this particular work. These operating “miners” are compensated through transaction fees and newly created Bitcoins. Each purchase transaction is recorded in the “blockchain”, a permanent public ledger. To acquire your own Bitcoins, you must first set up a “wallet”, the virtual storage place for your “money”. Go to a website such as Blockchain.info and then make a payment in real currency to have the corresponding amount of Bitcoins transferred to your wallet.
From the beginning in 2011, investors and speculators participated in Bitcoin fever, purchasing them and holding them until their value rose, then selling them. That first boom and bust cycle signaled that virtual money had caught the attention of enough of the public for real money to get involved. It also posed the question of whether Bitcoin fever would ever become more than a novelty. In the beginning the U.S. Federal Reserve, the Bank of England and other major world financial institutions considered cryptocurrency of no use for real transactions because of the technology needed to acquire it and the lack of places available to use it.
Bitcoins are produced by mathematical algorithms and then a payment address is assigned by a randomly generated set of characters. It is possible to interact business anonymously with this address. The anonymous nature of the transactions also makes them difficult to tax. Every Bitcoin spent is authenticated by the network and none can be spent twice. You do not have to spend an entire Bitcoin; you can split them into 100m “satoshs” (pieces) and spend them separately. A big advantage is that Bitcoins cannot be counterfeited. A big disadvantage is that you have to have an internet connection on which to spend them. Another disadvantage is that few people or places as yet accept cryptocurrency for payment. But that is beginning to change.
A few of the payment processors, such as the Atlanta-based Bitpay, are making real profits from handling the business of this currency and more companies are beginning to take Bitcoin payments each month. Such recent high powered publicity as Virgin Galactic accepting Bitcoins for payment for space shuttle flights should provide quite a booster to Bitcoin fever. From the view the European Central Bank held in October 2012 that Bitcoin was “characteristic of a Ponzi scheme” to the Chicago Federal Reserve’s comments in November 2013 that Bitcoin was “a remarkable technical and conceptual achievement”, the tide is turning to bring Bitcoin from the edges of today’s economic practices into the mainstream.
The current most popular uses of Bitcoins are for international money transfers, buying up the currency as speculation that in a small amount of time you will be able to sell it for a profit, and buying things anonymously on the shadier parts of the Internet. Bitcoins, unfortunately, have been associated and investigated with buying drugs from a website named Silk Road that was shut down by the FBI in 2013, at which time it seized 1.5 percent of all existing Bitcoins as part of the investigation. Because they can be spent anonymously, people have used them to make illegal purchases as well as for investment and legitimate uses.
Statistically, the common people are also keen to mine and invest in cryptocurrencies after their profitable reviews. But, investing in the proper hardware and mining equipment always posed a great challenge. No doubt, the legitimate hardware vendors are equally racing up the track with affordable deals for commoners. One can go through reliable sources like Coin Mining Direct review blogs to get an idea of how their sales have shot up in a short duration!
Today’s forward-thinking economists are taking note of Bitcoin fever and realizing that Bitcoin might have a place in our future economy. Even Benjamin Bernanke, the head of the U.S. Federal Reserve, is ready to make Bitcoin part of U.S. Currency regulations. That is a key step towards legitimacy for cryptocurrency.
Our economy may actually be experiencing the beginning of a shift between the nature of the economy versus the nature of the money we use, brought on by the Internet. We are asking for the equivalent of digital cash instead of credit cards and Paypal, which charge us fees. If Bitcoin is successful at being that digital cash we are asking for, then we will all develop Bitcoin fever.