Bitcoins will buy a lot more this holiday season than they did a year ago. At the end of 2012, they traded for just over $13, but about a week ago, one Bitcoin was worth $1,000. The crazy price increase begs the question: is the Bitcoin a genuine currency or just a risky investment? Regardless of your personal viewpoint, the fact remains that many legitimate businesses do now accept Bitcoins. They have been the currency of choice for drug dealers, money launderers and others involved in illegal activities since they were invented in 2009, but they are not just for criminals anymore.
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What is a Bitcoin?
A Bitcoin is a form of digital currency. It is similar to PayPal®, in that it was established as a form of payment for online purchases. Unlike PayPal, however, the Bitcoin network does not use dollars, but comes with its own currency. Unlike the U.S. dollar or other national currencies, Bitcoins do not have a central repository and are not tied to any government. As an unregulated currency, its value fluctuates, sometimes wildly.
Where can I spend Bitcoins?
As noted above, Bitcoins are used primarily to make purchases online. However, recently brick-and-mortar businesses began accepting Bitcoins as payment. How does this work since the Bitcoin is a digital currency? The purchasers must have a Bitcoin app on their mobile phones. With this app, they scan a QR code provided by a retailer. The QR code represents the Bitcoin transaction. The transaction is made and then the mobile app sends the required number of Bitcoins to the store. A large metropolitan area is more likely to have brick-and-mortar businesses accepting Bitcoins as a form of payment. The website www.coinmap.org provides a world map that highlights retailers that accept Bitcoins. Www.bitcoinblackfriday.com includes “deals” for Bitcoin users.
Should I start using Bitcoins?
You could lose a lot of real money if your Bitcoins lose 50% or more of their value, which could happen overnight. The value of Bitcoins may rise and fall without notice .In addition, unlike the U.S. dollar or other similar currencies backed by nation-states, the Bitcoin does not have a central repository and is unregulated and not secure. No one really knows what the future is for Bitcoins. The process for storing them is also somewhat tricky. Something as simple as a forgotten password could deny you permanent access to your Bitcoins. Finally, owning them isn’t practical for the average shopper since only a limited number of retailers accept them.
For more information:
Washington Post: Questions about Bitcoin
NBC News: Virtual Currency Buys Real Gifts
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