What You Need to Know About Bitcoin


In the past few years, the world has been introduced to the concept of the digital currency. Though the idea had been attempted before, bitcoin is the first truly realistic digital currency. Bitcoin has the benefit of being transparent, secure and liquid.

Though there has been much talk about bitcoin in the media, it remains somewhat inaccessible to much of the population due to its digital nature.

In order to understand bitcoin, here are some of the basics of the cryptocurrency:

What is Bitcoin?

In layman’s terms, bitcoin is an open-source payment system which allows a person to securely send payment to another person while paying practically no transaction fees. This has made bitcoin extremely attractive to those looking to send money or conduct business across borders.

Bitcoin is also relatively anonymous and includes a sort of transaction history feature that severely limits any efforts at stealing or counterfeiting the currency.

How Many Dollars is Bitcoin Worth?

The price of bitcoin has fluctuated greatly since its creation in 2009. The most recent quotes put the value of one bitcoin at about $600. Bitcoin reached a high in December 2013 at almost $1,150.

What Determines Bitcoin’s Value?

Supply and demand determine bitcoin’s value. For example, the currency leapt in value from around $120 per coin in September 2013 to more than $1,000 per coin in December as more people came to learn about it.

There is a finite number of bitcoins that can ever be created, and this number is controlled by the way the code which generates bitcoin was written. The value of bitcoin dropped substantially in December after it was revealed that the coin was not as safe as some had thought.

How Safe is Bitcoin?

Bitcoin is extremely safe to use, as safe as any currency. However, people who hold their bitcoins in a so-called third-party wallet are in danger of losing their coin if the company which controls to the wallet has financial problems or is fraudulent.

Mt. Gox was a third-party company that caused a crisis of confidence in bitcoin after it claimed that it had lost hundreds of millions of dollars worth of bitcoin.

What Can I Buy With Bitcoin?

Just like deciding whether or not to accept credit cards, individual companies and organizations decide whether not to accept bitcoin payments. As the currency’s popularity grows, an increasing number of companies and organizations are deciding to accept the payment, including select universities and retailers.

There are even a number of companies which are launching technologies which would make paying for goods and services with bitcoin every bit as easy and intuitive as paying with a credit card.

What is the Investment Potential of Bitcoin?

The future of bitcoin is difficult to predict. On one hand the currency is benefiting from a surge in popularity and familiarity among the population. The freshman class at MIT was given $100 worth of bitcoin each, which could singlehandedly lead to the development of revolutionary applications for the coin.

However, as federal authorities have yet to take a definitive stance on the currency and its legality, its future is uncertain. Some financial analysts see it going to $10,000 or more per coin in short order, while others call it a money-making scheme with no future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies , Banking and Loans , Basics

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Joe Young

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