Bitcoin has been in the news a lot lately and when people see it, it makes them want to ask questions. "What is Bitcoin?", "Where can I buy it?", or "Should I buy it?" are some of the more common questions I hear. Instead of continue to field these questions I thought I would write a brief high-level overview of what it was and why you should (or shouldn't) care about it.
What is Bitcoin?
Bitcoin is an alternate currency that was created in early 2009 by a guy named Stoshi Nakamoto. It uses a highly complex algorithm to encrypt and protect the currency from anyone wanted to steal or track it.
Why was it created?
There are various reasons why one would want to protect their identity and prevent outside sources (e.g. government agencies, spies, enemies) from being able to track the money you spend. Today money is tracked by using a serial number in the US.
In my opinion this currency seems to benefit those partaking in questionable or illegal activities most, however there are completely honest and reasonable purposes for the money. Bitcoin received a big popularity boost when it was determined to be the primary currency on silk road, a popular website used for selling / buying legally questionable items. Read more on that fiasco here.
Even though it has a sketchy background, be sure not to assume that everyone that uses Bitcoin is scandalous or a law breaker!
Should I buy it?
This question is one of the most debatable.
On one hand it's a new and emerging technology that has already made early investors very wealthy and could potentially make current investors more wealthy. Depending on how early you knew about and purchased Bitcoin you could've gotten it for under $5. The price has soared as high as $1200 since then. Currently it is hovering around $600. You can check today's price here.
On the other hand Bitcoin is still new and unproven. In the past few weeks several sites allowing you to trade the currency have been taken offline for reasons such as security upgrades, excessive demand, etc. The price still fluctuates and isn't backed by any government. In other words, if all heck breaks loose, there is no one to hold accountable to get your money.
How do I get it?
Currently you can either get or buy Bitcoin from others that have it, or you can get it by mining it. Yes mining!
Just as with gold during the gold rush you can mine Bitcoin. The only difference is that you're not mining it with a pickax from a mine shaft, your using a supercomputer and 'mining' a complex encryption algorithm. The supercomputer must have several processors, cores, and gigabytes of RAM to process the algorithm that will potentially encrypt some fractions of potential Bitcoin. This method is typically not used since it can get pricey and even end up costing more than actually just buying the Bitcoin outright from another person. You have to know what you're doing and have a lot of time on your hands to make mining Bitcoin worth it. It can be done though!
You may have noticed I said "fractions of potential Bitcoin". You don't have to trade BitCoin in whole coins. It can be broken down into fractions of a Bitcoin as well. There is no sub-Bitcoin currency at this time but it may be something on the way.
Where can I use it?
In the last few months several companies have began allowing Bitcoin as payment methods. If you're interested in paying this way be careful. As with gold, if a Bitcoin today is worth $600 USD and you buy something, let's say an Xbox One, then the Bitcoin value jumps in price tonight to $1200; it means you lost $600 in potential value and paid $1200 for an Xbox One that cost less than half that in USD.
That said, if you still want to purchase things using your coinage feel free. The chances of it being worth less tomorrow are about the same as it being worth more.
There are hundreds of places that accept Bitcoin as payment but not many major retail outlets do. For a list of places that accept Bitcoin as payment, click here.
While Bitcoin is the most popular, there ARE Bitcoin alternatives out there that use similarly difficult algorithms for encryption. Some of the major ones are Namecoin, Litecoin, Dogecoin, PPCoin, and Mastercoin. A full list of alternatives is available here.
It should be noted and repeated that there is no physical coin is involved in trading Bitcoin. It's simply sent through email or other electronic means of communication. The physical coins you see floating around are just a representation of having Bitcoin, and do NOT actually mean you the holder of the coin owns Bitcoin. Don't pay someone $1200 for a physical Bitcoin token!
If you have the extra cash and want to be involved in something that could potentially prove lucrative, I'd say go for it. Obviously there is a pretty big risk since it's new and unproven. If you are on a budget, I wouldn't get involved. It doesn't seem like it's THAT great of an alternative and still could be a quick way to lose your cash!