I’m not going to lie, I had no idea what a Bitcoin was until a few weeks ago. I have seen numerous articles, tweets and posts about Bitcoin all over the web lately. I was intrigued by the hype, but was not familiar with the concept–so I did a little digging. I am not, shall we say, in with the financial whiz kids. I haven’t balanced my checkbook since highschool (and I won’t tell you how long ago that was)!
So, what is a Bitcoin? As reported in USAToday, “Bitcoin, the virtual currency composed of digital bits, is based on cutting-edge mathematical schemes that guard against counterfeiting.” Bitcoin began in 2009, “as a currency free from government controls, an entirely digital means of exchange for a digital age.”
Bitcoin is one of the first utilizations of a design called crypto-currency, and according to Bitcoin.org, “Building upon the notion that money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context, Bitcoin is designed around the idea of a new form of money that uses cryptography to control its creation and transactions, rather than relying on central authorities.”
It is important to know how it works. You have to install a “wallet” on your smartphone or computer, then generate a Bitcoin address. You can then swap addresses with your friends to exchange payments. They say you don’t need to know more about the technical aspect to use the currency, but give you some vocabulary and explanations if you are interested.
An article on Bloomberg.com gives an example of how they can be useful, “…Bitcoin fills a void, like secure international transactions from countries like Indonesia from which merchants are unwilling to take credit cards because of fraud.” But, very few merchants actually take Bitcoins as payment.
It’s a rapidly growing phenomenon that has taken root as a payment method on some websites for both legal and illegal goods. Ars technica points out that, “Bitcoin’s biggest asset is also its biggest liability—no government or regulator controls what people are willing to pay for a little piece of nearly-anonymous computer code.” Personally, that isn’t an economic model I am interested in. It seems to me that it is far to easy to have your information compromised, and your funds swindled, then what? No one is backing and insuring the cyber-currency like FDIC protects consumers with a more established banking platform.
The market price had been steady at less than $10 since it was established. But this week, the value soared past $200 each, then took a huge dive, down to under $100. The largest Bitcoin exchange, called Mt. Gox, which handles over 80% of Bitcoin trade, halted trading on April 11 for what it called a “market cooldown.”
BBC News reported, “The exchange went offline to beef up its hardware to cope with trading volumes and stem the fall in value. However, soon after trading resumed the site came under a sustained hack attack which saw it bombarded with data. In a tweet, MTGox said the it was being hit by a “stronger than usual” attack. It went offline again to avoid the attack, and when it re-started, Bitcoins continued to fall in value.” The article went on to state, “In addition, malicious software is emerging that seeks out and empties the virtual wallets of Bitcoin owners.”
Forbes calls Bitcoin a “disruptive technology” and it seems to be so.
I’m no investment marvel, but I’m not sure this is where I’d want to put my money. It seems more like an experimental SIMS-type money game. I like to have more security in my technology, whether it’s currency related or not. The Bitcoin conversion rate fluctuates every 15 minutes!
I think I’ll pass and keep my money somewhere a little more traditional.
Things you need to know about Bitcoin.
Have you had any experience with the currency?
Are you willing to experiment?
—Anna van Tonder