The Bitcoin Phenomenon: Does Anyone Really Understand This Cryptocurrency?
Posted on January 20, 2014 by Avery
Since 2009, Bitcoin has become the controversial subject of numerous debates. Some governments and people praise it, and just as many passionately oppose it as a form of currency and transaction. As Bitcoin currency became more mainstream, investors were able to reap huge profits in the now infamous Bitcoin bubble. As with all bubbles, the market crashed; however, it was also quick to regain its footing. The strange world of Bitcoin is now more mainstream, and the potential of using it as a worldwide underground currency is only beginning to blossom.
What is Bitcoin?
Bitcoin is an open source transaction software that specializes in the digital currency dubbed bitcoins. Bitcoins are described as a crypto-currency that is, in theory, untraceable and unlimited in potential growth and decline. The currency is created according to a secret algorithm that calculates the supply and demand. Users then download a Bitcoin wallet that can store money for future use. One of the initial key attractions of Bitcoin was its anonymity. Transactions were conducted through a third party, and the only receipt was a long transaction code. In the early days of Bitcoin, this allowed users to spend their bitcoins on often illegal substances. However, as governments cracked down and Bitcoin became more mainstream, the usage of Bitcoin for illicit activities declined. Now, Bitcoin is beginning to receive attention from small businesses, internet start-ups, and gambling websites.
Businesses Embracing Bitcoin
In 2013, over 30,000 online businesses began accepting bitcoins as a form of payment. Over 1,000 physical stores allowed the use of Bitcoin as well, making 2013 the high-mark of Bitcoin’s short history. One of the main reasons for this success was the realization that Bitcoin has lower fees than traditional credit cards. The transaction fee for Bitcoin is often half of the traditional credit card fee, and the transaction is nearly instant. Bitcoins can also be adapted into the local currency immediately and cheaply to make them a truly international form of payment. The fact that bitcoins can be transferred into local currencies immediately and the reduction of fees has helped to make them ideal for fast-paced gambling settings. A man in the Netherlands can gamble from a website in Thailand, and any winnings can be transferred to him in almost real-time. As online gambling begins to legalize in states throughout the US, so too does the prospect of using Bitcoin as a means of currency.
The Risks of Bitcoin
While both promising and interesting, Bitcoin still contains many risks that users should understand. The primary risk is the security of both the transaction and wallet. In fact, the very nature of “anonymous” crypto-exchanges makes it a primary target for scammers and thieves. Should a transaction fail or be fraudulent in nature, the giving party will lose their funds without any chance of recourse. Compared with credit cards that allow users to dispute funds before paying, Bitcoin can offer very little security in exchange for its services. Another risk of Bitcoin is the chance for another major bubble to occur. There have been two major bubbles already, and while some lucky and quick sellers were able to make a hefty profit, most were left with deflated bitcoins. The very nature of Bitcoin is fast-paced and volatile, and unless a larger audience takes it seriously as a form of payment, it will continue to be a somewhat risky venture. Even with the inherent risks, Bitcoin is worth keeping an eye on as it is not going away soon. Small businesses may benefit from the use of Bitcoin, and early adaptors may be praised in the future. Wherever Bitcoin leads, it is sure to provide an exciting narrative in the finance and business world.