Explain Bitcoins

[lorraineb]

Can someone please explain what Bitcoins are to me and why they are getting so much press these days? Is this a scam of some type or is there real value in them? What are the risks and why do some people seem to be so high on them while others say they are worthless. Can anybody give me a neutral evaluation of the pros and cons of Bitcoins?

[humandraydel]

Can someone please explain what Bitcoins are to me and why they are getting so much press these days? Is this a scam of some type or is there real value in them? What are the risks and why do some people seem to be so high on them while others say they are worthless. Can anybody give me a neutral evaluation of the pros and cons of Bitcoins?

Bitcoins are a digital currency that were created by an anonymous computer whiz several years ago. Essentially, a coin is a certain long sequence of numbers (hexadecimal) that meets a specific pattern. Because the pattern is so complex, it takes computers a pretty long time to "mine" these coins by continuously crunching numbers until it finds a number that meets the pattern. There will only be a certain number of coins in existence because there are only a specific number of "numbers" that meet the pattern. So, in theory it is not a currency that can be manipulated by governments and should be less susceptible to inflation due to a limit on money supply.

Because it is a digital currency, transactions can be anonymous which is why early on it got a bad rap as a currency for "shady" deals (drugs, etc). However, it is starting to become more mainstream.

It's hard to tell what will happen with them. Early on, they were mainly just for fun because no one would accept them for services/goods. Slowly, some tech specific websites started accepting them. Some exchanges got set up to let you convert into dollars. That created a small bubble maybe 1.5 years ago where the coins went from $5 to $40 and then crashed back to $7 or so. Recently, as more people started accepting them and they became a little more mainstream there was a massive bubble with the value skyrocketing to $230 and then back to $70 in the course of 2 days. They are since back to $110.

As for value, well, it's worth what the next guy will pay for it. The volatility is pretty large because no one really knows what it's worth. I would say there are significant risks to it and I wouldn't call it an investment. More like a gamble that may pay off. Or maybe it's just a fad and somehow governments are going to try and stop it?

[kork13]

Just like any other valuable thing (gold, jewelry, cars, homes, artwork, etc)., Bitcoins DO have value, but only as much as people are willing to place on it. Basically, bitcoins are created by computers processing through a particular open-sourced algorithm. Over time, it takes more and more processing time & power to create each bitcoin, and eventually bitcoins will "cease production" once about 21 million bitcoins have been created (creating a limited supply). They are considered by many to be a 100% valid currency, which is traded and exchanged exactly like the US Dollar, Japanese Yen, and English Pound. There are online "banks" that will track and "store" your bitcoins. Remember that bitcoins have no actual physical note or coinage -- it's all essentially 1's & 0's, which is highly encrypted for security. Many websites and even some brick-and-mortar stores are accepting bitcoins as valid payment. One particular nuance of the bitcoin is that their transactions can be completely untraceable, which is why many criminals are actually using them for illicit transactions, money laundering, etc. The bitcoin is essentially a private, unregulated currency, which is why the government hates it and multiple segments of the global population (programmers & criminals for a couple) absolutely love it. The biggest problem with them, however, is that the market for valuing bitcoins is EXTREMELY volatile. Bitcoin values have gone from $260/bc to $80/bc over the course of a couple days, only to jump back up to $180/bc a couple days later. Current price (today, 11 May) is about $117/bc.

That's about the extent of my knowledge, but the wikipedia article on Bitcoins is actually quite good, I'd recommend you read that for some better understanding.

[greenskeeper]

worse than fiat money....at least with that you can hold onto the paper, or as in the weimar republic you could burn the money to heat your home (still has value as a heat source)

[mrpaseo]

I read that the Bitcoin was an experiment to see how fast a fiat currency could raise and crash. As of a few days ago I found a website that took Bitcoin in exchange for Gold and Silver. I know of only one person in on Bitcoins and he is basically just sitting on them to see how they turn out (Initial investment of about $200).

As I have read and have been told, somehow there will be only 21 Million bitcoins produced (Has to do with coding and whatnot that is above my pay grade). The "Mining" that is done started with computers doing simple math and figuring out the answers, once the answers were found, you earned a credit (Fraction of a Bitcoin). They then figured out that certain types of chips made the computers figure out the answers quicker and then further made "Mining" specific computers to do the math faster. The next step was to put multiple computers together (P2P) to work on the same equation and then splitting the pay evenly. This is how the Bitcoins are earned.

As for using them, to reflect on what has already been said, Bitcoins can be exchanged for cash or used to purchase on websites and in some stores. This is how you are able to buy Bitcoins rather than mine them.

They say that Bitcoins can not be hacked and from what I read, the entire code from the origination of the Bitcoin can be traced so as to confirm that it is an original Bitcoin thus they can not be counterfeited. This, to me, just sounds like a challenge.

From my understanding, the attraction to the Bitcoin is that of a few. First, the bitcoins can be mined passively, meaning you set up your computer and go about your day. As long as you are logged into the site, you will be working on math problems and will be earning (If/when you crack a problem) the only downside is that the math problems get harder over time and thus takes more time. Another attraction is that the money can not be taxed since it is not attached to you specifically, there is no way for the government to track it so they can not tax it (Which is why the government does not like it).

A downfall of the Bitcoin is that you must trust who you are giving them too because there is no way to go back and prove that you gave them for good/services. There is no legal action, just trust (I may be incorrect but this is what I read).

I'm not sure how long it will take for people to feel safe and secure with digital money. As for now, I like to be able to hold on to something physical (Be it currency or Gold/Silver). If we did go over to digital currency (a hundred years from now) they will need to come up with entire new systems because what we have now, is just to easy to hack.

I still do not fully understand them not do I own any. I do not feel comfortable allowing other computers access to my computer (Witch is what Peer to Peer or P2P is). That said, if I had a stand alone computer to set up and do the math, then I may entertain the though. That said, keeping the computer running 24/7 will cost money as well so I'm not sure if it's worth it.

[cooliemae]

I think bitcoins are going to prove an interesting idea and present us with some challenges to our perception of money and value.

Just a side note about the the computing...the company e-sports entertainment recently admitted to attaching bitcoin mining software to one of their apps, which provided the company with a great deal of computing power at no cost to them.

A follow-up question would be, would you be willing to allow for mining on your computer/tablet/smartphone for free software?

[mrpaseo]

A follow-up question would be, would you be willing to allow for mining on your computer/tablet/smartphone for free software?

NO, basically what this does is allows others access to your computer. You must shut down firewalls for the programs to access. Usually a single folder/file is authorized but that's all they need is a gateway to get into your computer. If you do try this, get a stand alone computer that you do not keep your personal information on.

Best.

[humandraydel]

Or maybe it's just a fad and somehow governments are going to try and stop it?

Here's an article from CNN Money:

U.S. law enforcement officials cracked down this week on the Bitcoin economy's biggest exchange, Mt. Gox, accusing its operator of running a money transmitting business without the proper license and freezing several of its key financial accounts.

[MoneyTips4U]

It will be interesting to see how BitCoins turns out to say the least...

Governments cannot regulate it, but at the same time, that means that an economic collapse will not adversely affect them.

BitCoin Mining is also an interesting topic, one which I think I need to educate myself more on.

[Snodog]

Bitcoins are a ponzi scheme for internet libertarians and have virtually no intrinsic value IMO. I find it amusing that so many bitcoin fans are the same people who rail against "worthless" fiat currency. At least governments have taxation to create demand for their paper and give it value.

Just because something is rare or hard to get does not necessarily make it valuable.

Bitcoins are the modern day version of The Holland Tulip Bulb Mania, but even with that at least you got a tulip bulb.