What Is Bitcoin and Is It a Good Investment?

Bitcoin (BTC) is a new type of digital currency with cryptographic keys decentralized to a network of computers used by users and miners around the world, and not managed by a single organization or government. It is the first digital crypto-currency that has gained the attention of the public and is embraced by an increasing number of merchants. official site Users can use the digital currency as well as other currencies to buy goods and services online as well as in certain physical stores that allow it as a form of payment. Currency traders can trade Bitcoins in Bitcoin exchanges as well.

There are several major differences between Bitcoin and conventional currencies (e.g. US dollars): Bitcoin has no centralized authority or clearing house (e.g. government, central bank, MasterCard or Visa network). The peer-to-peer payment network is run worldwide by users and miners. The currency is transferred directly through the internet between users anonymously, without going through a clearing house. That means transaction fees are considerably lower.

Bitcoin is generated through a “Bitcoin Mining” process Miners around the world use computers and mining software to solve complex Bitcoin algorithms and to authorize Bitcoin transactions. They are awarded transaction fees and new Bitcoins created from Bitcoin algorithms being solved.

A limited amount of Bitcoins are in circulation. According to Blockchain, as of Dec. 20, 2013 about 12.1 million had been in circulation. The complexity of mining Bitcoins (solving algorithms) gets harder as more Bitcoins are produced, and the maximum circulating amount is capped at 21 million. The cap is not reached until around the year 2140. It makes Bitcoins more valuable because they are used more by people.

A public ledger called’ Blockchain ‘ records all Bitcoin transactions and displays the respective assets of each Bitcoin holders. The public ledger can be accessed by anyone to check transactions. That makes the digital currency more stable and clear. Most specifically, the accountability protects same Bitcoins from spending theft and double spending.

The digital currency can be purchased by Bitcoin mining or through exchanges with Bitcoin.

A limited number of merchants on the internet and at some brick-and-mortar stores support the digital currency.

Bitcoin wallets (similar to PayPal accounts) are used to store Bitcoins, private keys, and public addresses as well as to transfer Bitcoins between users through anonymous means.Bitcoins are not regulated by government agencies, and are not covered. Therefore, they can not be recovered if the secret keys are stolen by a hacker or lost to a failed hard drive, or a Bitcoin exchange is locked. If the hidden keys are lost, the Bitcoins involved can not be retrieved, and they would be out of circulation.

I assume that Bitcoin can gain more public acceptance as users can remain anonymous when buying goods and services online, transaction fees are much smaller than credit card payment networks, the public ledger is open to anyone who can use it to prevent fraud, the currency supply is limited at 21 million, and the payment network is run by users and miners instead of a single person.

Bitcoin surged this year as investors hoped the currency would gain wider acceptance and the price would increase. In December, the currency plummeted 50 percent after BTC China (China’s largest Bitcoin operator) announced it could no longer accept new deposits because of government regulations. And the Chinese central bank barred financial institutions and payment firms from managing bitcoin transactions, according to Bloomberg.

Bitcoin is likely to gain more public acceptance over time, but its price is extremely volatile and highly sensitive to news-such as government regulations and restrictions-that could adversely affect the currencies.