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.
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:
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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