If you’re like many including myself until recently, you probably don’t fully entirely understand what this mysterious new currency known as Bitcoin is. From humble underground beginnings, this once seeming fad has attracted much mainstream attention as of late, and is beginning to seem more and more like a viable form of currency.
What is Bitcoin?
But what is Bitcoin, where does it come from, and, as many are asking, should I invest in Bitcoin? Well, a quick web search would tell us that Bitcoin is what’s known as a cryptocurrency. Not that that explains much for even many economists or computer scientists, let alone for the average layman. In short, Bitcoin is a currency that has no central authority and exists only in the form of securely transmitted data. These transactions are secured by cryptography and every transaction has its signature or private key which ensures the integrity of its transactions.
Where do Bitcoins come from?
With its climb in value many are looking to get in on the action, some for the novelty, and some for its potential lucrativeness. Most people will go for the relatively straightforward route of logging onto a Bitcoin exchange and exchanging their dollars for Bitcoins. For others, there is the concept of “mining” Bitcoins. What that means exactly is a bit beyond the scope of this article and would involve some pretty high level math. The short explanation would be that Bitcoins are mined by having one’s computer do some extremely complex math using random data, hoping to arrive at a certain value. Every once in a while a “miner” will stumble upon a winning value, and is awarded a certain number of Bitcoins. The mining algorithm is self-correcting, keeping up with improvements in computing power in order to keep the number of Bitcoins in check.
Should I invest in Bitcoin?
That is the big question on many people’s minds. The currency has certainly had a turbulent past few months. It’s been closely tied to underground black market sites such as Silk Road, which was shut down a few months ago by the FBI. Such ties are, however, inevitable with a cash-like, untraced currency. More recently, the largest Bitcoin exchange, Mt. Gox, has filed for bankruptcy. These events, among other reasons, have caused a decline in Bitcoin’s value, once worth over $1000USD, now worth about $400.
On the other hand, Bitcoin seems to be on an upswing now, owing largely to its growing mainstream acceptance. Taking part in leading this new acceptance, is online marketplace, Overstock.com, which has recently begun accepting Bitcoins, and will prove to be a much more acceptable face for Bitcoin than shady black markets. In a landmark display of government acceptance of the currency, the Federal Election Commission has unanimously decided to allow Bitcoins for campaign contributions. And perhaps most interestingly, the Winklevoss Twins, best known for their legal battles with Facebook founder, Mark Zuckerberg, are preparing to launch the first publicly traded Bitcoin fund on NASDAQ.
No one knows for sure where this currency is headed, and like most investments it comes with some risk. Many have made quite a bit of money off of it, and for those willing to take the risk, Bitcoin just might be a worthwhile investment.