You may have heard the term bitcoin thrown around a lot lately, or seen it pop up in news articles.
But what exactly is it, what does it mean, and should you be using it? We've compiled some information from around the web to give you more information.
What is it?
According to bitcoin's website, it is a digital currency. It uses peer-to-peer technology with no central authority, in which "managing transactions and issuing bitcoins are carried out collectively by the network." An exploratory NPR article lays it out like this: Bitcoin is like cash for the online universe that doesn't exist in the physical world. It's not tied to any country or government. The value of all bitcoinsjust hit $1 billion.
How does it work?
Users can sign up for a "wallet" at bitcoin.org. The wallet can be installed on your computer, mobile phone or on the web. There are a few ways to acquire bitcoins, through websites that connect local bitcoin users and currency exchange sites. You can also mine them virtually in much the same concept that someone would mine for gold. As described in this Huffington Post article, mining is "basically making your computer run a program to 'do mathematical calculations for the Bitcoin network to confirm transactions and increase security.' "
How does it translate to U.S. currency?
This is one of the more controversial parts of using bitcoins. The price at this point fluctuates rapidly. As of March 29, 1 bitcoin was worth $88.81. Today, according to the exchange website mtgox.com, the latest price is $141.32. At the time of thisNPR article in 2011, the price fluctuated from $7 U.S. dollars to $23.80 in a matter of weeks. Felix Salmon, in this Reuters opinion column, asserts that "Volatility is a serious problem." He goes on to argue that if the currency of a country ever fluctuated as much as bitcoins did, it wouldn't be taken seriously; therefore bitcoin doesn't really behave like a currency as much as a highly-volatile commodity.
Should you be using it?
That seems to depend on your risk tolerance. Remember, bitcoins aren't backed by any government, or, really, anyone. And the price fluctuation is unpredictable. Plus, there have been reports of the system getting hacked
and people losing money. This Forbes article
, written by a bitcoin user and supporter, lays out four reasons why you shouldn't buy bitcoins. But the author, Timothy Lee, points out that those "who understand the currency well tend to be enthusiastic boosters," and that criticisms tend to be "superficial, misguided or just plain wrong." In a separate column
, he points out that while the GDP of the United States is guaranteed to grow relatively slowly, "it's entirely possible that the volume of bitcoin commerce could be 10 or even 100 times larger than its current size a decade from now." Another article onBusiness Insider
explores the potential that the rapid rise in bitcoin prices are the result of a bubble that will eventually burst; though unlike previous bubbles, this one can be watched in real time
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