Move over credit cards and PayPal, there’s a new kid on the block. The future of online transactions may rest with a mysterious digital currency called Bitcoin.
What Is a Bitcoin?
Bitcoins, unlike dollars or pounds, are currency that can be used without the hassle of middlemen such as banks or government institutions. Bitcoin is a peer-to-peer system, making it very similar to music sharing programs where files are passed back and forth across a network of users. To accumulate bitcoins, your computer solves difficult algorithmic problems and earns bitcoins for every answer produced. Once you’ve amassed a collection of bitcoins, you can use them to purchase items by sending them to unique bitcoin addresses. Much like cash, bitcoins are anonymous and difficult to trace. Bitcoins and cash also share a disadvantage: They are stored in a wallet (in this case, a virtual one), so when a hard drive is lost, so are the bitcoins.
The Bitcoin Bubble
Since their 2009 launch, bitcoin has become the top performing currency in the world. Just last year, a bitcoin was worth half a penny. Today, it’s up 200,000%, worth $10.50. Their rise to the top, however, has not been without hitches along the way. This past month, bitcoin was the target of hackers and thieves robbing digital wallets, causing the currency's value to plummet. The bitcoin bubble and crash has raised uncertainty, prompting a California advocacy group, which had been collecting donations in bitcoins, to return the coins.
A New Age
Bitcoin software developers are confident that the currency will bounce back from recent hiccups. With a growing trend toward alternative mediums of exchange, virtual currencies may grow to serve the needs of online traders, programming service providers and gambling websites. There’s no reason that bitcoins will be limited to the electronic world, though. Some restaurants, such as Meze Grill in New York City, are already beginning to accept bitcoins as payment. So, whether it’s a downloadable app or a tomato sandwich, bitcoins have you covered—and they could be here to stay.