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article imageAre Bitcoins the future of currency?

By Alyssa Sellors     Nov 3, 2014 in Internet
As the way we do business changes, inevitably the way we make payments and transactions will also change, and increasingly this change means digital transactions that never see cash or even card.
One major downfall of everything going digital is the increased opportunity and ease of hackers to obtain personal information. Just look at the major retailers affected in the past year alone. And while companies are trying to find the next best solution for protecting credit card numbers and other payment information (think ApplePay and their secure element), there is one option that perhaps has not gotten the credit it’s deserved and could be the future of currency: cyrptocurrency, and in particular Bitcoins.
Cryptocurrency is a “medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography,” used to secure transactions between users. Basically, it’s a virtual payment system that is entirely digitized. Bitcoin was the first cryptocurrency, introduced in 2009 as a software-based online payment system, and since its inception, other cryptocurrencies have appeared, referred to as “Altcoins,” which is short for Bitcoin Alternatives.
The entire process of exchanging Bitcoins is similar to other payment networks like Visa credit cards or PayPal, but is different in that it is decentralized and it comes with its own currency, explains Timothy Lee of The Washington Post. The Bitcoin network uses the monetary unit, the Bitcoin, and there is no regulating body as it is complete peer to peer transactions with no central “bank.” Computers around the Internet work together to process Bitcoin transactions, called “miners,” through the transaction-clearing process called “mining.” And users can actually win “prizes” by winning computational races (the current reward is 25 Bitcoins, worth about $12,500), which creates an incentive to join the Bitcoin transaction-clearing process.
Despite its relatively new status, Bitcoin is gaining attention and should be on our radar as the possible future of currency worldwide. One of the most attractive features of Bitcoins is that it is completely decentralized, meaning no financial institutions or credit card processors have their hands in the dealings. It is a complete peer to peer transaction that is not regulated or controlled by anyone. For this reason alone, the incentive for more businesses to consider Bitcoins as legitimate payment for goods and services is growing. Businesses can cut the cost of fees, passing savings onto consumers, which could be huge for our economy and its recovery from the 2008 recession. Of course the lack of regulation also means a lack of security, but that could all be changing very soon as more regulators are in talks with Bitcoin groups like the Bitcoin Foundation. However, just this week the Bitcoin Foundation’s Executive Director, Jon Matonis, resigned for reasons unknown. Established in 2012, this foundation has been a major voice in the virtual currency world, particularly in the way of regulations proposed by the New York Department of Financial Services. This resignation is not the end of the foundation but it does provide a setback at a fairly critical point when just last year “Bitcoin has become more popular in the mainstream, but many supporters say it has yet to reach its full potential.” The industry is in the midst of a necessity for regulation to bring Bitcoin into major markets and increase consumer trust, and the current state is a waiting game to see just how regulators will treat the virtual currency community and its widespread adoption.
Another criticism of using Bitcoins is its volatile nature. However, with more mass adoption and wider acceptance, this problem could be easily alleviated. Major companies like Amazon, Expedia and PayPal have already started accepting this virtual currency and with more mass adoption comes more money in the market and better price regulation. For years the problem has been a lack of transaction volume, and this lack of liquidity has affected the price but according to blockchain.info, more than 13 million Bitcoins are in circulation, and as of this month, more than 70,000 transactions have been recorded. This means that Bitcoin transactions have nearly doubled since 2013 alone. But there are other factors to look to as evidence the digital currency is growing. One is the number of investments in Bitcoin-related startups and the increase in exchange volume despite the low price of the Bitcoin. Just consider the startup Bitpay, which “processes that Bitcoin payments on behalf of vendors,” and raised over $2 million early into 2014. Or consider Coinbase, “a startup that helps customers buy and sell Bitcoins,” that has raised nearly $5 million so far. Startups like these, and many others, are a major sign that more and more people are looking to the Bitcoin as a new global asset with true value.
There are of course concerns and drawbacks at this point, which include a lack of consumer protection, lack of regulation, and the ability for Bitcoins to be stolen, but regulatory talks are in the works. And perhaps the Bitcoin culture could take a clue from social media’s success (which did not happen overnight). Instead, an infrastructure was built and developed and some actually compare the rise of the Bitcoin to the rise of social media in that it will take time to create user confidence. Just take a look at Twitter.
If you are a beginner looking to get started with Bitcoins, you can purchase the currency using traditional currency, like the USD, via websites such as Coinbase, which will convert traditional currency into Bitcoins at the current exchange rate. Once you purchase Bitcoins, you can store them in “wallets,” which are encrypted files with personal codes that allow you to transfer your Bitcoins, or print out your encryption keys and store them in a safe place (called the “paper wallet” approach).
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