It seems like Bitcoin is making news nearly every day (whether it be positive or negative). This has lead a lot of people to ask, “What IS Bitcoin, exactly?” Well, faithful reader, look no further.
Before we dive into the specifics of Bitcoin, let’s start by explaining what cryptocurrency is, in general. Cryptocurrency is digital or virtual currency that is used for security reasons, due to the fact that it is difficult to counterfeit. There are many types of cryptocurrency: Namecoin, Dogecoin, Litecoin… Just to name a few. Since Bitcoin is dominating the cryptocurrency market we’ll focus on that.
Bitcoin it is a unit of currency that does not have something tangible, like gold or silver, to stand behind it, but code. It has no governmental oversight, like the dollar. The Bitcoin economy is regulated by a peer-to-peer internet protocol. Basically, a Bitcoin is a string of data that signifies one unit of currency. Technically, it’s considered a “decentralized currency,” which means a network of users control and verify transactions. Because there are no banks to deal with when transferring Bitcoins to another person, which keeps the processing fee low. Once the transaction happens, the record of the exchange is put on a public ledger called a “block chain.” These transactions are verified by “miners.” When the transaction is verified, the miner is given newly minted Bitcoins, adding more Bitcoins into circulation. While Bitcoins can be exchanged a real currency, it also has something in common with stocks. By this, I mean, that the value can change. Since the creation of Bitcoin the value has ranged from $0.75 to $1,000. It might be helpful to think of it this way: Bitcoin is real currency that fluctuates in price.
Where do you use it?
You can buy anything from plane tickets (http://cheapflights.com) to pizza (Lean Crust Pizza in Brooklyn). Bitcoin is increasingly becoming a valid form of currency. CoinMap.com offers an extensive list of places that accept Bitcoins for purchases. More and more merchants are offering it online as well.
Since Bitcoin’s creation, hackers have been trying to steal from the Bitcoin network. Even though the Bitcoin network has remained untouched, many Bitcoin platforms have been hacked, which raises concerns about the overall security of Bitcoin. Proof of this vulnerability happened this February, when Mt. Gox, the largest Bitcoin exchange in the world, went bankrupt after 850,000 Bitcoins (worth about $450 million, at the time) disappeared. If you do decide to dabble in Bitcoin, here are some tips to help keep your investment safe:
- Protect your computer against malware. In order to keep your computer safe, you need to make sure that you are using strong passwords, scanning for viruses on a regular basis, installing antivirus software, and using firewalls.
- Set up a secure offline Bitcoin “wallet”. There are two main options when it comes to wallets: Electrum and Armory. Electrum seems to be the more user-friendly choice while Armory is more secure.
- Don’t keep your Bitcoins in a stock exchange that has a questionable reputation. This can be achieved by simply doing a bit of research before handing your money over.
SHOULD you invest in Bitcoin?
Well, that is up to you. I, personally, would not but you aren’t me. If you do decide to invest some of your money in Bitcoin, just be smart about it. Do your research and keep your money secure. Remember, you aren’t playing around with fake internet money, this is real.