In the last decade, Bitcoin has become a popular virtual currency. From a humble beginning in 2009, after Occupy Wallstreet put a microscope on the banking business, to being accepted by large retailers in today’s online markets, it’s safe to assume most everyone has heard of Bitcoin.
At its core, Bitcoin is a peer-to-peer transaction system. Instead of being a currency with its basis on silver and gold, like the dollar, Bitcoin is its own currency. The platform records every transaction that involves the Bitcoin, and then “miners” are paid to run algorithms and programs that will then previous transactions into a bitcoin ledger. For every “block” of bitcoin mined, a miner receives transaction fees in the form of bitcoin. This can then be exchanged for goods and services. As Bitcoin gains traction, a consumer can now purchase bitcoin in physical locations as well as online.
However, as with every form of currency, there are inherent risks associated with using, purchasing, or selling bitcoin.
The Risks of Bitcoin
Because bitcoin is not a legal tender, it carries none of the guarantees that legal tender does. Businesses do not have to accept bitcoin, and it is not covered by the FDIC. Bitcoin platforms and wallets are digital in nature, meaning they can and have been hacked, resulting in users losing their money. The anonymity of bitcoin also allows for the spread of illegal transactions, which can affect users should the crypto-currency be shut down by government officials trying to stop the spread of money laundering and drug-related transactions.
Speculative investments in bitcoin have their own share of potential pitfalls. With the variation in prices sky-rocketing and then plummeting without any notice, potential speculators could see a significant profit or a dramatic loss within a day’s span.
Though there seems to be many detractors, there are positives to this type of currency as well.
The Encouraging Side of Bitcoin
Bitcoin is decentralized, making international transactions easier without the need for dealing with exchange rates. There is transparency in every transaction, so the user knows exactly where their money is going. It is also free of governmental interference as bitcoin doesn’t have a Federal Reserve.
Bitcoin is new and exciting to the tech-savvy, and not without its pitfalls. By being mindful of usage, and wary of scams or schemes, bitcoin users can enjoy a new level of currency.