What is Bitcoin and why should I care?

bitcoinA new form of currency has been taking the media by storm. Bitcoins can be used to purchase a Subway sandwich, antiques at auction, a haircut, a plane ticket and even local honey. Vendors are starting to recognize this new phenomenon as a form of payment. Boston’s own South Station has an ATM where you can now purchase the digital currency. The question still remains, what is a Bitcoin and why should I care?

According to Bitcoin’s website, a bitcoin is a digital currency you can use for personal transactions or business at high speed and low cost. The currency is not used by banks thus allowing for very little to no fees associated with it. The Bitcoin site boasts that frequent travelers should use bitcoins to avoid exchange rates. Another potential advantage for some people is the anonymity Bitcoins provides for its users. While transactions using bitcoins are recorded publicly, the names of the sellers and customers are kept anonymous and only their wallet IDs are shown. This also means that transactions are hard to trace and preferred for people dealing in illicit activities. This new currency is surely innovative but highly unstable as there is no government regulating the amount of bitcoins circulated at one time. To that point, according to the Boston Globe computers can “mine” for new coins by performing complex algorithms and add them to the system. For example, a bitcoin that was worth $1,242 in November is now worth a little under $600.

Now for a little history lesson in bitcoins

The concept for Bitcoins started in 2009 by a person or group that goes by the identity of Satoshi Nakamoto. It is thought that the person resides in Japan however, some say that the mail ID came from Germany. Many people have speculated who Satoshi Nakamoto is but no one has ever succeeded in learning the person’s true identity. Bitcoin started as an Open source project which is defined as a development model that promotes universal access via free license to a product’s design or blueprint, and universal redistribution of that design or blueprint, including subsequent improvements to it by anyone. In layman’s terms this means that no one company or person owns the rights to the Bitcoin software.

This seems pretty cool

Bitcoins seem like the answer for men and women who travel and want to purchase things abroad without the burden of exchange rates or people who are heavily into online shopping. If you’re a big online shopper like me this might sound like a great idea. However, before you run and exchange Friday’s paycheck for this digital currency, think twice about the risk factors. Bitcoins are not backed by a bank or the FDIC meaning that if your bitcoins are stolen there is no one to refund the money you lost. Additionally, the system is not very secure and there are countless stories in the news about the latest bitcoin loss. One could argue that a black market for drugs, even online, might not be the safest place for bitcoins to reside, however this is just one of the many examples of retailers that were hacked and had the currency stolen.

So, why should I care?

I’ve told you what Bitcoins are, how they are used and where and the reasons someone would use them. If you are not interested in purchasing something from the offbeat vendors currently accepting bitcoins you could argue why you should care about this currency at all and stick to the good old U.S. dollar. Regardless of all the security risks and the instability of the Bitcoin market, the currency is gaining popularity. This could become the currency of choice for many online vendors in the future much like Paypal is preferred by many Ebay sellers. Many question whether Bitcoin will survive as a currency option but I think it will be here to stay for some time. So whether you want to stick with your cash or try out bitcoins, there is a new option out there for all you online shoppers.