Bitcoin is a new kind of currency denoted by virtual or digital tokens
rather than physical coins/notes. Its
value is determined by how much people are willing to exchange for it. Supported by peer-to-peer technology and cryptography,
to process Bitcoin transactions, a procedure called "mining" must
take place, which involves a computer solving an algorithm.
There are essentially four parties involved in the Bitcoin economy:
-Consumers who are paying with Bitcoin
-‘Miners’ who process and validate
Bitcoin transactions via computers
-Merchants who accept Bitcoin
-Entrepreneurs/developers
building new products and services with Bitcoin.
I
found a really good (short) video explanation here: https://www.youtube.com/watch?v=Um63OQz3bjo
Every day more and more people
are agreeing to accept Bitcoin in transactions.
In fact, there are currently about 11 million Bitcoins in existence.
There are very divided views out
there with the promoters saying that Bitcoin will revolutionise the world of
payments in much the same way as the internet has fundamentally changed how
consumers, and people, operate. Marc
Andreessen, who’s venture capital firm, Andreessen Horowitz, has invested just
under $50 million in Bitcoin-related start-ups is massively excited about the
potential of this digital currency. In a
recent NY Times piece he wrote: “Bitcoin
gives us, for the first time, a way for one Internet user to transfer a unique
piece of digital property to another Internet user, such that the transfer is
guaranteed to be safe and secure, everyone knows that the transfer has taken
place, and nobody can challenge the legitimacy of the transfer.”
Meanwhile in Cyprus, in the
University of Nicosia (UNic), you can now pay for university tuition in Bitcoins!
According to the university, those who wish to pay tuition fees in Bitcoins
will be able to use an online merchant processing service or pay directly to
the finance office.
Social Gaming company Zynga has also announced it’s going to test
Bitcoin payments for its in-game purchases with popular games like Farmville 2,
CastleVille and CityVille.
Merchants and manufacturers are also embracing this new currency. According to Reuters, the Bitcoin ATM
manufacturer Lamassu is reportedly seeing an increase in orders for its service
-it has sold 120 of its ATMs worldwide since it opened for business, shipping
machines to Canada, Russia, and other countries.
Similarly a Bitcoin storage service has launched in London. Insured against the loss and theft of the
digital currency, Elliptic Vault uses "deep cold storage", where
private encrypted keys to Bitcoins are stored on offline servers in a secure
location. Unlike money stored in a bank, Bitcoins are not insured and there is
no way of retrieving them once they are gone.
Much like the Internet, there is no one government, regulator or private
entity behind Bitcoin and so governments across the world are now scrambling
around deciding how to legislate for this new currency.
In some cases, there has been an outright ban, namely in China, where
the largest online marketplace, Alibaba Group's Taobao, said it would ban
virtual currencies. In December, the
country's central bank ordered financial institutions to halt Bitcoin-related
services and products.
Singapore, on the other hand, has become one of the first countries to
issue tax guidance for Bitcoin businesses.
It is also monitoring transactions to detect any illicit financing.
In the US, however, it has been received more positively with
Overstock.com becoming one of the first major online retailers to accept
Bitcoin.
There is a huge amount of hype about this new innovation, not all of it
positive. In particular questions focusing
on transparency and control. Who
controls the flow of this new currency? Who is making money from the hype? Is it a pyramid scheme?
Let’s face it; Bitcoin has absolutely no track record. You certainly can’t buy your dinner with
it! The reason cash and cards work is
because they work so well and are easy cash has been around for thousands of
years and will last because it does a simple job simply. It is trusted and easily transferable.
As I write this I am coming to conclusion that I should not be taken in
by the hype and take a jaundiced view of this now. I think it will be a crash but I may well be
so wrong!
It’s hard to see what new value it is bringing or big problems it is
solving ... or am I a dinosaur here?
Time will tell.
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