Bitcoin is a new currency that was created in
2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are
made with no middle men – meaning, no banks! There are no transaction fees and
no need to give your real name. More merchants are beginning to accept them:
You can buy webhosting services, pizza or even manicures.
Why Bitcoins?
Bitcoins can be used to buy merchandise
anonymously. In addition, international payments are easy and cheap because
bitcoins are not tied to any country or subject to regulation. Small businesses
may like them because there are no credit card fees. Some people just buy
bitcoins as an investment, hoping that they’ll go up in value.
Acquiring Bitcoins
Buy on an Exchange
Several marketplaces called “bitcoin exchanges” allow people to buy or sell
bitcoins using different currencies. Mt. Gox is the largest bitcoin exchange.
Transfers
People can send bitcoins to each other using mobile apps or their computers.
It’s similar to sending cash digitally.
Mining
People compete to “mine” bitcoins using computers to solve complex math
puzzles. This is how bitcoins are created. Currently, a winner is rewarded with
25 bitcoins roughly every 10 minutes.
Owning Bitcoins
Bitcoins are stored in a “digital wallet,”
which exists either in the cloud or on a user’s computer. The wallet is a kind
of virtual bank account that allows users to send or receive bitcoins, pay for
goods or save their money. Unlike bank accounts, bitcoin wallets are not
insured by the FDIC.
Wallet in cloud: Servers have been hacked.
Companies have fled with clients’ Bitcoins.
Wallet on computer: You can accidentally delete
them. Viruses could destroy them.
Anonymity
Though each bitcoin transaction is recorded in
a public log, names of buyers and sellers are never revealed – only their
wallet IDs. While that keeps bitcoin users’ transactions private, it also lets
them buy or sell anything without easily tracing it back to them. That’s why it
has become the currency of choice for people online buying drugs or other
illicit activities.
Future in question
No one knows what will become of bitcoin. It is
mostly unregulated, but that could change. Governments are concerned about
taxation and their lack of control over the currency.
Source:CNNMoney