Today’s transfer of money comes in many forms, from cash to check to credit.
Now, even these can be replaced with bitcoin, a virtual form of cryptocurrency that is utterly unique.
As the rapid growth of Paypal has demonstrated, there is a steep demand for the ability to exchange funds on the Web.
Bitcoin was first introduced to the public in 2008 with an article published by the elusive and enigmatic Satoshi Nakamoto about the benefits of a technology-driven currency system using peer-to-peer software.
Launched in 2009 on an open source sharing program with exclusive uses in niche internet markets, users can now use bitcoins for transactions on thousands of websites and in hundreds of web-based video games, as well as brick and mortar retailers like CVS, Home Depot, and Overstock.com.
For those with a basic understanding of virtual currency, bitcoin may seem like a simple alternative to paying with cash.
And, in some ways it is. Via check, credit, or wire transfer, many people break into bitcoins by purchasing from exchanges or from individuals selling directly.
For some, these traditional methods are enough, but in reality, this barely scratches the surface.
In a bizarre, technological throwback to the California gold rush, individuals have the ability to mine for bitcoins, or to discover bitcoins yet unclaimed.
Instead of taking a gold pan to the river, bitcoin mining is a term that refers to the proof of work system of verifying block chains of transactions on the bitcoin network.
Be securing a block of data, miners use computer software to simplify the digital footprint of these transactions into a collection of suggestive symbols and numbers known as a hash.
This process essentially legitimizes each block by verifying that the transactions have not been tampered with. Complexities in the hashing process, including altering the data included in a hash to create a signature the bitcoin protocol is designed to accept, makes the mining process intensive, but important.
In October 2009, the bitcoin market was born. New Liberty Standard established a currency exchange rate, debuting at $1.00 USD to 1,309.03 BTC. Today, this amount fluctuates, rising and falling in a way similar to stocks on market indices, trading on the Bitcoin Market, which launched in 2010.
Investing and trading bitcoins is similar to international stock exchanges, with prices reflecting market movements based on supply and demand . Unlike our traditional market models, bitcoins are not backed by a company’s financial performance or investors but rather a system of open bid and ask orders on the various exchanges. These market orders drive exchange rates, similar to the movement of more traditional forex markets.
With such a wide variation of uses and a market with virtually no backing, the idea of a new method of handling transactions is both exciting and very overwhelming. For every excited eager investor is a traditional finance professional, screaming in opposition about the instability of bitcoins as a currency.
Despite the naysayers, bitcoin is on an upward trajectory, with more businesses accepting virtual currency daily and more individuals, from gamers to grandmothers, jumping in on the trend.
As bright as the future appears, however, it’s always important to realize the transient nature of technology and how unforeseen developments render a sure thing obsolete.
After all, AOL and dial-up internet was once the wave of the future.
Related: Does Global Trade Need A (Bitcoin) Global Currency?