Ten things you should know about Bitcoin and digital currencies
Ten things you should know about Bitcoin and digital currencies
Bitcoin and other digital currencies have emerged as potential disruptors to the financial system, but fear, theft, and illegal activity still suspend over them. Here’s what you need to know.
By Lyndsey Gilpin | May 21, 2014, Four:00 AM PST
Bitcoin has injected itself into a lot of conversations about the future of technology, economics, and the internet. The future of digital currencies remains a controversial topic. After reading these ten things to know about the confusing world of digital currencies, you’ll feel certain joining the conversation.
1. The difference inbetween virtual, digital, and cryptocurrencies
Virtual currencies were developed because of trust issues with financial institutions and digital transactions. Tho’ they aren’t even considered to be “money” by everyone, virtual currencies are independent of traditional banks and could eventually pose competition for them.
Very first, there are three terms that are sometimes used interchangeably that we need to sort out: virtual currency, digital currency, and cryptocurrency.
Virtual currency was defined in two thousand twelve by the European Central Bank as “a type of unregulated, digital money, which is issued and usually managed by its developers, and used and accepted among the members of a specific virtual community.” Last year, the US Department of Treasury said that digital currency operates like traditional currency, but does not have all the same attributes — as in, it doesn’t have legal tender.
Digital currency, however, is a form of virtual currency that is electronically created and stored. Some types of digital currencies are cryptocurrencies, but not all of them are.
So that leads us to the more specific definition of a cryptocurrency, which is a subset of digital currencies that uses cryptography for security so that it is enormously difficult to counterfeit. A defining feature of these is the fact they are not issued by any central authority.
Two. The origin of Bitcoin
Bitcoin is a cryptocurrency, a number associated with a Bitcoin address. In 2008, a programmer (or group of programmers) under the pseudonym Satoshi Nakamoto published a paper describing digital currencies. Then in 2009, it launched software that created the very first Bitcoin network and cryptocurrency. Bitcoin was created to take power out of the forearms of the government and central bankers, and put it back into the arms of the people.
There are presently about twelve million Bitcoins in circulation, however when it was created, the programmer said there is a finite limit of twenty one million Bitcoins out there. They are presently valued at around $460 each, according to Bitcoin Charts, which tracks the activity. The value surged as high as $1000 each in December 2013.
Trio. The origin of Dogecoin
Dogecoin is a form of cryptocurrency that was created in December 2013. It features Doge, the Shiba Inu that has turned into a famous internet meme. It was created by Billy Markus from Portland, Oregon, who wished to reach a broader demographic than Bitcoin did. As of March, more than sixty five billion Dogecoins have been mined, and the production schedule of this cryptocurrency is in production swifter than most.
Earlier this year, the Dogecoin community raised funds for the Jamaican bobsled team to attend the two thousand fourteen Winter Olympics when they could not afford to go. The community also raised 67.8 million coins (about $55,000) to sponsor NASCAR driver Josh Wise, who drove the Doge-themed car in several races.
Because there’s a lot of them, Dogecoin is valued pretty low — 1,000 Dogecoins are worth $0.46.
Four. Other types of digital currencies
There are other types of digital currencies, tho’ we don’t hear much about them. The next most popular is most likely Litecoin, which is accepted by some online retailers. It was inspired by Bitcoin and is almost identical, but it was created to improve upon Bitcoin by using open source design.
There are many other types of cryptocurrencies, such as Peercoin, Ripple, Mastercoin, and Namecoin. Cryptocurrencies get some flack because they are often replicates of other versions, with no real improvements.
Five. Bitcoin regulations
Who is in charge of Bitcoin? The point of the currency is that it is decentralized, but there are legalities that differ in every country. Law enforcement and tax authorities are worried about the use of this cryptocurrency because of its anonymity and the ease of using it for money laundering and other illegal activities. Bitcoin was the prime currency on Silk Road, which was used to sell illegal goods, including drugs. It was shut down in two thousand thirteen by the FBI.
The US Security and Exchange Commission (SEC) hasn’t yet issued specific regulations on digital currencies, but it often warns about investment schemes and fraud. The Financial Crimes Enforcement Network (FinCEN), an agency under the Department of Treasury, took initiative and published virtual currency guidelines in 2013. Many countries are still determining how they will tax virtual currencies. The IRS is specifically worried with virtual currencies being used for unreported income.
6. How Ben Bernanke switched the Bitcoin game
In late 2013, the very first congressional hearing on virtual currency was held to outline the pros and cons of Bitcoin. The hearing ended up providing a financial boost for the currency, because US officials talked about it as a legitimate source of money, as opposed to only discussing its role in illegal activities.
Albeit he didn’t attend, Federal Reserve Chairman Ben Bernanke said in a letter to US senators that virtual currencies “may hold long-term promise, particularly if the innovations promote a quicker, more secure, and more efficient payment system.” Bitcoin, which was valued around $13 in the beginning of 2013, hopped sharply after news of his comments broke.
7. How to get Bitcoins
There are three ways you can get Bitcoins: buy them on an exchange like Coinbase, accept them for products and services, and mine them. We’ll get to the latter process in the next section.
To embark, download a Bitcoin wallet. There are many websites where you can download an app on your phone or computer to store Bitcoins. MultiBit is an app you can download for Windows, Mac and Linux. Bitcoin Wallet for Android runs on your phone or tablet. To store the Bitcoins, you have three options:
1. Desktop wallets leave you responsible for protecting the currency and doing your own backups.
Two. Mobile wallets permit you to travel with the Bitcoins anywhere, and you are responsible for them. Mobile apps permit you to scan a QR code or tap to pay.
Trio. Web wallets are transacted through a third party service provider. If anything happens on their side or it gets hacked, you run the risk of losing the Bitcoins, so extra backups and secure passwords are suggested.
Problem is, Bitcoins can be stolen in fat quantities, just like money, and with no centralized bank, there’s no way to recoup the losses. There are several types of Bitcoin ATMs, which exchange Bitcoins for vapid currencies. Most machines are expensive and uncommon, ranging from $Five,000 to $Two,000. Skyhook, a Portland, Oregon-based company, demoed a $1,000, machine at a conference this month. It is the very first portable, open source ATM.
8. How to mine for Bitcoins
It’s like mining for gold, just on the computer. You need a Bitcoin wallet and specific software, which is free and open source. The most popular is GUIMiner, which searches for the special number combination to unlock a transaction. The more powerful your PC is, the quicker you can mine. In the early days, it was effortless to find Bitcoins, and some people found hundreds of thousands of dollars worth of the cryptocurrency using their computers. Now, however, more expensive hardware is required to find them. Each Bitcoin block chain is twenty five Bitcoin addresses, so it takes a lot of time to find them on your own. The exact amount of time ranges depending on the hardware power, but mining all day could drive your energy bill up and only mine a little fraction of a Bitcoin — it may take days to mine enough to purchase anything.
To tackle that problem, there are now mining pools. Miners around the world can band together to combine the power of their computer systems and then share the profits inbetween participants. The most popular one is Slush’s Pool, where smaller, more sustained payouts are given instead of a lump sum.
9. Where you can use Bitcoin
There are many places you can use Bitcoin to purchase products or services. There’s no real rhyme or reason to the list, which includes big corporations and smaller, independent retailers including bakeries and restaurants. You can also use the currencies to buy flights, train tickets, and hotels on CheapAir; upgrades to your OK Cupid profile; products on Overstock.com; bounty cards on eGifter. There’s a list on SpendBitcoins that shows all the places that accept the cryptocurrency.
Ten. The future of virtual currency
The value of Bitcoin has fluctuated drastically across the last year, and there are still nine million of the coins out there in cyberspace. However, many security issues remain, and that will proceed to be a problem. In 2013, Mt. Gox, a Japanese exchange, treated 70% of all Bitcoin transactions, but they lost some 750,000 Bitcoins in February two thousand fourteen and filed for bankruptcy, and nothing has been proven in the case. Since it’s universal, it’s useful for international transactions, and could be helpful for transactions in developing countries.
Some experts suggest putting a few aside if you have them and see what happens in the coming months and years, because there are sure to be regulations on the currency soon. With businesses hopping on the bandwagon and investors becoming interested in cryptocurrency, look for momentum to grow, but it will take time for the situation to stabilize as governments, the international community, and the people of the internet determine on how the next generation of currency will transition to a digital world.