Virtual Currency: One Coin To Bring Them All

There has been a wild fluctuation lately in the value of a Bitcoin, which made me take a second look. What is Bitcoin and what is all the fuss? Why the gyrations now? In short, Bitcoin is a virtual currency that is stored and transferred digitally through an electronic wallet. There is strong encryption surrounding the wallet to ensure that only the owner can transfer or trade Bitcoins for goods, services, or other currencies.

History

Bitcoin was developed in 2009 and there are two ways that you can secure a Bitcoin (or block of Bitcoins). You can mine Bitcoins by setting your computer to the task of solving increasingly difficult math problems that assist in Bitcoin transactions. You can also buy and sell Bitcoins on currency exchanges such as MTGox. The number of Bitcoins is mathematically capped at 21 million and it is estimated that the last Bitcoin will be issued in 2140.

Currency value

What fascinates me is the potential of a new currency that is not tied to a country or state and is not regulated by a central bank, yet is tradeable and can be used for commercial transactions. There are several establishments that are beginning to accept Bitcoins for products ranging from a foot-long sandwich to college tuition to attorney services—even a future space journey aboard Richard Branson’s Virgin Galactic! The value of a Bitcoin in the United States has jumped from $13 in January of this year to currently $1,067. Part of the rise in the last two weeks can be attributed to U.S. Senate hearings around virtual currencies, which lent legitimacy to Bitcoin and others.

Competitors

There are competitors such as Peercoin, Litecoin, and Anoncoin, the latter guaranteeing anonymity by operating in the dark corners of the Internet. All of these competitors hope to cash in on the same speculation that has driven Bitcoin to its current heights. Whether people hoard virtual currencies or spend them for goods and services will be the ultimate test as to how history views them. Will virtual currencies be seen as a speculative bubble, similar to the Dutch “tulipmania,” or, if they become legitimate, a means of trading?

Thoughts

At the end of the day, a currency—virtual or fiat—is really just a medium for exchanging unlike goods and services. The lure of Bitcoin is that it is not yet regulated, it can be traded globally without international constraints, and it does not carry the 2-4 percent transaction fees of credit cards. It relies on the collective power of individual computers on the Internet to process transactions. These are the very same computers hoping to mine new Bitcoins by solving the algorithms necessary to process those transactions. In other words, a very symbiotic relationship as long as there is a lure of potential gain. It is a well thought out system and time will tell whether it becomes a new legitimate currency or succumbs to speculation. Be it Bitcoin or a competitor, I believe that this is the new norm in currency.

Do you own any Bitcoins? Would you invest in Bitcoins or use them as currency? What do you find most attractive about virtual currency? What scares you? Let me know.

Author Kelly BrownAbout Kelly Brown

Kelly Brown is an IT professional, adjunct faculty for the University of Oregon, and academic director of the UO Applied Information Management Master’s Degree Program. He writes about IT and business topics that keep him up at night.

 

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3 thoughts on “Virtual Currency: One Coin To Bring Them All

  1. Joseph

    Great to see an open dialog about bitcoin as it definitely deserves more attention. As a lover of freedom, I personally believe that the benefits of a decentralized currency like bitcoin significantly outweigh the downsides. Bitcoin takes massive power and influence away from bloated governments and big banks and returns it to the people in the form of frictionless payments to one another. Who would be against governments no longer being able to print money at will to fund trillion dollar wars and bailouts? Additionally, bitcoin technology is providing a revolutionary (and simple) way for the “un banked” millions across developing countries to finally exchange money with one another. With bitcoin, if they have a smartphone and a bitcoin app, they can pay each other for goods and services as well as send money back home to loved ones, all without massive, abusive fees with ancient systems such as Western Union and the like.

    I’m encouraged to see more people talking about bitcoin and I encourage you to consider some of the benefits I’ve mentioned.

    All the best,
    Joe
    http://scryptify.com

    1. Kelly Brown Post author

      Thanks Joseph, I agree that a greater use of a an unregulated currency would level the playing field significantly. I am watching this space closely. Thanks for your comment.

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