Bitcoins, Wallet, and the Coins Use as Cash Currency

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Bitcoins, Wallet, and the Coins Use as Cash Currency

Bitcoins, Wallet, and the Coins Use as Cash Currency from Zach Copley

 

Bitcoins, Wallet, and the Coins Use as Cash Currency

Bitcoins, Wallet, and the Coins Use as Cash Currency from AEIdeas

A lot of people are wondering what bitcoins are.  If this weren’t such a popular subject, I would probably steer clear of it, but since a lot of you guys want to know about them, I guess I can dive in and explain to you what they are and what their perceived benefits and problems are.

Bitcoins are a digital currency that has been developed by a pseudonymous person by the name of Satoshi Nakamoto.   It is a fully digital object that attaches a long stream of historical data to it.  The purpose of this data is to see where it was created, where it has been, and to verify the legitimacy of the coin as a cash currency.

He created the currency to be completely independent of a centralized governing body (that is peer to peer).  The way this is accomplished is through an object called a blockchain, which is just a transaction log that is hosted on many computers around the webspace that are running an open source encrypted protocol.  These computers are called Bitcoin Miners.  They are allowed to mine new bitcoins because that is how they are paid for the electricity and resources running on them for the use of the bitcoin currency network.

Mining is limited by allowing only so many for every 10 minutes with the number dwindling on a hyperbolic curve (the more is mined, the longer it takes and the harder the mining process gets for less results) until it reaches the final number of available bitcoins that will ever be available.  Therefor it was designed to be the digital version of a precious resource, like gold and silver.  This is supposed to combat inflation.

Bitcoins, Wallet, and the Coins Use as Cash Currency

Bitcoins, Wallet, and the Coins Use as Cash Currency from Gizmodo

By decentralizing the bitcoin, the system allows people to commerce globally and to do so somewhat anonymously.  Each bitcoin wallet has a few addresses associated with it.  Many people use it for the black market.  Silk Road is one such black-market website that only allows bitcoin transactions.

There are some good things and bad things on bitcoins that everything should know before even considering getting into the market:

PROS:

  1. Transactions are not subject to most taxation laws because it isn’t considered money services business unless you are a bitcoin miner (or creator) and sell for a national currency.
  2. Transaction history is backed up on a very large number of bitcoin miners, so it is hard for hackers to mess with histories due to the size of histories and the speed at which transactions are updated.
  3. Anyone with a PC can generate bitcoins, but speed and power are the key, since creation is your reward for offering your resources to help the network.
  4. Global currency use, so there is no need for exchanges.
  5. Finite amount could be considered a plus, not making it a money, but more of a commodity that is being used for currency.
  6. The government still hasn’t figured out a way to get their hands on it, and that is why it is very popular with Libertarians and Survivalists.
  7. If nodes (PCs) leave the network for a while, and come back, they can resume with updated information.
  8. So far, it is speculated that many people have been using the bitcoin as a haven from the Cyprus financial crisis.
  9. Some mainstream businesses have begun to accept it, and Argentina has adopted it as a major currency.
Bitcoins, Wallet, and the Coins Use as Cash Currency

Bitcoins, Wallet, and the Coins Use as Cash Currency from FT.com

CONS:

  1. Bitcoins are believed to be largely used for illicit drug and gambling transactions.
  2. Due to the digital nature, it will always be vulnerable to attack.  Aug 6 2010 users could create an indefinite number of bitcoins due to bypassing bitcoin’s economic restrictions.  Aug 15 2010, over 184 billion were created and sent to two addresses on the network, which was later corrected.
  3. Proven to be extremely volatile. Late 2011 price crashed from $30 to $2. April 10 2013, bitcoin crashed from $266 to $105, and then returned to $160 within six hours!
  4. Also due to being based on software and tables, new revisions created a split in the log systems so there were 2 different “transaction authorities”.  One of them just haulted any deposits, so they could rehash everything.  Prices dipped 23% due to this from $48 to $37.
  5. Been used on black-market websites and is used by Iranians to evade currency sanctions.
  6. Theft has been an issue (June 19 2011 $8.7 mil, July 2011 $220,000, Aug 2011 $800,000, late Aug 2012, $5.6 mil, Sept 2012 $250,000, Apr 3 2013 $4.6 mil) and many due to hack jobs.
Bitcoins, Wallet, and the Coins Use as Cash Currency

Bitcoins, Wallet, and the Coins Use as Cash Currency from Zach Copley

So, if you want to trade a precious metal that is globally easy to obtain, and has the ability to be hacked to be stolen, go right ahead.  Many of the benefits of the bitcoin that I can see is similar to the benefits of precious metals, whereas the downsides could be detrimental.  I only see a bright future for those that use bitcoin miners to sell into another currency and businesses that are willing to take bitcoins hedged against the bitcoin to gold, silver, USD ratios and that get out of bitcoin quickly after transactions.  I think there is some usefulness in bitcoin, I like the idea, but I still don’t really trust it.  If I accept it ever on my site, it would be for quick transactions then conversions.  I would prefer to keep my assets into something that is tangible (not the dollar) like silver, gold, or land that is based on either work done, or has intrinsic usefulness so that I know the value will continue to go up.

What do you think about the idea of the bitcoin?

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Ken
Ken
Ken is addicted to fitness and mountain biking. He is such a thrill seeker, people are starting to be concerned!He enjoys MTBing, Hiking, Climbing, Geocaching, Orienteering, Weight Lifting, and Wilderness Survival.

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