Did you know that WordPress accepts Bitcoin?
And Overstock.com? And Virgin Galactic as well as Reddit and Paypal?
Well according to a Nasdaq article, apparently they do.
Now for those of us old people, still stuck in the last century and who just recently abandoned Windows XP Home Edition, what exactly is Bitcoin?
Well the term Bitcoin can refer to either the Bitooin currency system or an individual Bitcoin – a unit of “currency” like a dollar or a euro.
“The Bitcoin Currency System is a form of currency developed in 2008 by an unidentified programmer known as Satoshi Nakamoto, with both similarities and differences to other currencies. It is similar to any nation’s currency in that it is traded and the market ultimately determines its value through pricing goods and services. However, the Bitcoin Currency System does not have the backing of a nation, nor is it currently regulated by traditional means (it actually self-regulates via a computer program). Though still small compared to nation currencies, Bitcoin is the only decentralized currency in the world today.”
Unlike other currencies, Bitcoin is actually transparent, and it is easy to quantify the amount that exists within the market. Just Google “the price of Bitcoins,” and you will be directed to any number of sites that give you the daily price and the total value of the entire currency — a process that is calculated by multiplying the value of Bitcoin on that day by the total number of outstanding Bitcoins. What could be more transparent and straightforward than that? By contrast, the actual value of all outstanding money of any nation’s currency is at best subjective and very confusing on an international scale. Each country determines its own policy and “creates” money. Hence, most currencies can be diluted if a country simply decides it needs more of it.
The Bitcoin Currency System was designed to mimic the economic properties of gold, in that there is a finite amount of it (the more you mine, the less there is available). As scarcity and use increases, the value goes up.
Anyone can “mine” for bitcoin by solving computer generated mathematical problems, joining a world wide network of connected computers. As more processing power is contributed to the system, the software automatically increases the difficulty of the math problem, thereby creating scarcity of the newly created Bitcoins. There is a limit to the total number of Bitcoins that can ever be created, and the arbitrary cap is set at 21 million. Once this number is reached (or approached), those parties contributing their computer power will be rewarded through transactional fees ultimately paid by users (like a credit card processing fee) rather than though mining.
The Bitcoin Currency System closely resembles the gold standard system. The value of a Bitcoin is determined by supply and demand, and more Bitcoins cannot simply be issued because a country or a party needs more of them. The increase in the number of Bitcoins is purely organic, and if the cost of the computing power necessary to generate a Bitcoin exceeds the trading value of a Bitcoin, then no more will be mined. Just like gold, no one will pay $1,000 to extract and deliver Bitcoins when trading at $800..
Not surprisingly, governments do not like the Bitcoin Currency System because it threatens their respective currency. One reason for this relates to the fact that holders of Bitcoins currently have anonymity. On the other hand holders of bitcoin are no more anonymous than those holding large amounts of cash in their home safes.
Like anything new, the Bitcoin Currency System will have objectors and abusers. For instance, the Bitcoin Currency System took a major hit last October after the drug trafficking website, Silk Road, (where purchases were made with Bitcoins) was taken down. However, for the sake of argument, no one would earnestly suggest that cash should be abolished because drug traffickers use it. The Bitcoin Currency System experienced an even greater hit again in February when a leading Bitcoin exchange, MtGox, went offline and disappeared for nearly three weeks. This is an inherent risk of any currency — decentralized or not. The same risk applies even to PayPal, or having your password or other identification information hijacked. It is an inherent risk of the financial computer age.
The most noteworthy disadvantage facing Bitcoin is a dearth of retailers and vendors that accept it as currency. More are coming around but the vast majority of “name” vendors still consider the Bitcoin too illiquid and subject to volatile swings in value.
If everyone accepted it, Bitcoin would become “money”. If no one accepts it, it has no value. It is currently growing in acceptance.
The value of Bitcoin in the market lies in the erosion and instability of the American dollar and other world currencies. The current policy of the U.S. is to simply create money at will, whenever it is needed. This is considered a reckless policy by many (especially those with a great deal of money) which has caused the value of the current American dollar to plummet when compared to that of the 1990s.
So old folks, think of Bitcoin as virtual money – internet money. If you own Bitcoin it is “stored” in your “wallet” in the cloud; kind of like your Bank of America on line. If you don’t own it you can buy it with dollars or euros from a bitcoin trading house just as you would “buy” any other currency or investment. Remember that bitcoin is still highly volatile with all of the risks of the internet age.
You spend the bitcoin in your internet wallet similarly to paying for something on line with the proviso that the seller must be willing to accept bitcoin. Each transaction has your virtual signature and is forever recorded in the internet – the transaction, not your identity.
You can find out the value of your bitcoin on line – today a bitcoin is worth $459.92 in either goods and services you can buy from Subway or Overstock.com or the amount of “real” currency you can get from a bitcoin trader.
Or you can hook your computer up to one the worldwide net work of computers solving ever more difficult mathematical problems and, if your group solves the problem, get paid in bitcoin – which you can sell through a trading house for anything you consider “real” money or stash in your virtual wallet. And like gold, when the cost of “mining” bitcoin exceeds the current market value the level of “mining” drops off.
Isn’t finance fun in the new age?