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| Image credit: Wired.com |
Late in 2013, Bitcoin captured my attention. First, Magistrate Judge Amos Mazzant of Texas declared it real money (source) in a case against Trendon Shavers. In August, Bloomberg gave Bitcoin an experimental Ticker (XPT) (source). In November, Bitcoin was alleged to be used to traffic illegal drugs on the internet. A few days ago, Overstock.com began accepting Bitcoin payments (source). What seemed like an interesting concept is picking up steam.
What is it? Bitcoin is an experimental currency that can be
considered an invisible virtual currency. It was created in 2008 by a
person known as Satoshi Nakamoto (this is not believed to be the
individual's given name). This currency is not controlled by
universally accepted laws or regulations and is not backed by what most
people consider to be the standard tangible item of value, gold. In
order for Bitcoin to work, all users must agree that the Bitcoins have
value.
What do people use Bitcoins for? It can be used to buy a Subway sandwich in Allentown, Pennsylvania (source). If you’re in Omaha, an establishment called Covis CoWorking allows you to pay with Bitcoin to work remotely in their space on 108th and Pacific. Photographer Elizabeth Crow allows her customers to pay with Bitcoin in Eugene, Oregon. An
underground marketplace, Silk Road, allows people to sell illicit goods
and services using bitcoin via the anonymous browser Tor.
How does it work? First
you must install a Bitcoin wallet on your computer or smart phone.
"Once you download and run the Bitcoin client software, it connects over
the Internet to the decentralized network of all Bitcoin users and also
generates a pair of unique, mathematically linked keys, which you'll
need to exchange Bitcoins with any other client. One key is private and
kept hidden on your computer. The other is public and a version of it
dubbed a Bitcoin address is given to other people so they can send you
Bitcoins" (source). Once a person makes a Bitcoin
transaction, that transaction is processed by transferring the
information to a distributed consensus system that is verified by the
network. This process prevents a user from using the same coin (or
coins) for more than one transaction.
How safe is Bitcoin? Bitcoin is not insured like your money in a federally insured bank. A strong word of caution: Bitcoin transactions are uninsured and irreversible.
How do Bitcoin users protect their wallet? Since your wallet is electronic, it is critical that it is stored on a computer that is well protected. Storing your wallet on a computer connected to the internet that is not a good idea. Also, backing up your wallet to a cloud service might make the data vulnerable to theft.
I will sit the Bitcoin game out for now. It’s too new for me to really consider using it.
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