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What the bleep is a Bitcoin?

It’s been around for years, but it’s only recently been getting mainstream attention. Depending who you talk to, Bitcoin is either the next generation of currency, or just a crazy, unsustainable experiment. Either way it’s utterly fascinating.

What is Bitcoin?

Bitcoin is a virtual currency that exists only online. It has an exchange rate like a regular currency so you can purchase them, trade them for goods, and do most of the things you can do with traditional money. Instead of being printed on paper or minted in metal, a bitcoin exists as a set of very complex algorithms that is virtually impossible to fake or forge. You may see pictures of “bitcoins”, but these are either just models or special coins that refer back to the virtual coins.

Bitcoin was created in 2009, and has been use ever since. It’s gained enormous popularity recently with investors in Cyprus grabbing Bitcoins to get their wealth out of the financial mess their country is in. The result has driven the value of Bitcoins from around $15 at the start of 2013 to over $200 as of this moment.  If you look at the bitcoin value over the past few months it’s easy to see why people are buzzing. It’s serious enough that there are sites that track the Bitcoin exchange rate, and there is over one billion dollars worth of bitcoins currently in circulation.

What can you buy with Bitcoin?

bitcoinPurchasing things has been tricky, but it is getting easier. You can use third party sites to convert them to things like Amazon gift cards, and there is a growing list of places that accept bitcoins directly.

One of the first purchases via bitcoin was in 2010 when someone paid 10,000 bitcoins for a pizza. It was mainly done to prove it was possible to use bitcoins as “real money,” but people like to point out that at the current value that was a $1,000,000 pizza!

Having more places accept bitcoins is one of the biggest things bitcoin supporters push for, so expect this to keep growing.

Why do people like Bitcoin?

Bitcoin is not backed by a Government, and is controlled by a decentralized system of computers to prevent any one group from manipulating it. The way bitcoins come into existence was determined when the system was first made, and only about 21 million of them will ever exist . It’s similar to gold in that at some point there just isn’t more gold being mined, and the value is determined by what people will pay for it.

Supporters claim no Government can regulate bitcoins or devalue them by printing more (like they do with their own money), there is no tax on bitcoins (just a transfer fee), and it is very, very anonymous. These all make bitcoins a popular tool for people engaging in activities they do not want the Government to track. If bitcoin keeps its popularity, though, I will just about guarantee Governments will start getting involved in some form, and it will be interesting to watch.

How can I get a bitcoin?

To get a bitcoin you need a virtual wallet. One choice is to download bitcoin wallet software you can run on your computer. The advantage to this approach is that it is more secure, but if you lose your computer or the file, you’re out of luck. There is no bank to go back to who will fix it for you. The other choice is to register for a virtual bitcoin wallet online. The advantage here is access from anywhere, and you’re not tied to one computer. The downside is that these sites are the subject of malicious attacks and if they disappear so can your bitcoins.

Bitcoin’s popularity has already spawned hundreds of conversations in governments, magazines, and businesses around how currency works in a digital age. The Royal Canadian Mint even has their own digital currency project called MintChip now.

Will bitcoin be an interesting bubble or change the face of currency? It’s way too early to tell, but either way will be amazing to watch.