The bitcoin is a virtual currency available to a network of users that some people think will become the Internet currency of choice.
As Americans discuss eliminating the penny from daily use, and the U.S. Treasury places tiny electronic fibers into new bills to protect against forgers, a new form of electronic currency is beginning to make headway into mainstream markets.
The “bitcoin’’, a form of digital cash that has been used in Internet transactions, is being considered for mainstream use as a hedge against payment processing costs and transaction insecurity. It is the latest and so far most successful attempt to create an online currency.
Bitcoins traded for $267 as of Nov. 5, 2013, on the Mt.Gox bitcoin exchange, the world’s busiest marketplace for bitcoin trading.
The online dating site OKCupid, the blogging tool WordPress, and the social news and entertainment site Reddit accept bitcoins for purchase and payment. It is possible to buy Domino’s Pizza using bitcoins, but you have to go to a unique bitcoin Internet site to do so. The world’s first bitcoin ATM opened in Vancouver, British Columbia this week.
The bitcoin was first introduced in 2009. It is distributed through a network of users, who use a required bitcoin software and computer hardware to participate in the bitcoin network. Bitcoins are purchased with traditional government-backed currency such as the American dollar. An electronic ledger called the block chain, which is encrypted, maintains a precise record of every bitcoin transaction, and each bitcoin has an electronic signature so that it can be tracked through all of the transactions.
(Other digital currencies have been proposed, but since there is no physical currency involved, tracking has always been an issue and double-spending has eventually ruined the use of the currency.)
The details of bitcoin purchase and usage can be found at www.bitcoin.org.
There is a rising belief among economists that there is a need for a digital currency, and bitcoin has jumped in front in that marketplace.
“I’m confident you will see major worldwide retailers adopting systems built on bitcoin,’’ former Walmart Stores board member Jim Breyer told Yahoo! Finance.
You can get physical bitcoins. They are called Casascius coins, and they are encrypted with the value of each coin. They work much the same way a debit card works.
There are problems that exist with bitcoins. Their value fluctuates wildly, and will continue to do so as more bitcoins are created.
The bitcoin network says that bitcoin creation will stop at 21 million, but each bitcoin can be divided into 10 million equal parts, creating a virtually limitless supply.
Bitcoins were used by the black market Internet drug distribution system known as the Silk Road, which the FBI shut down in October of 2013. At the time of shutdown, the FBI was able to seize 26,000 bitcoins that had a value of approximate $3.6 million.
At present, there are no federal guidelines regarding bitcoins, nor are they taxed in any way. The Securities and Exchange Commission has charged one party for an alleged Ponzi scheme based on bitcoin investments.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.