Both small and large retailers are now starting to accept the digital currency called bitcoin, so what is bitcoin and how does it work? Well bitcoin was started just a few short years ago in 2008 by the mysterious Satoshi Nakamoto who created the Bitcoin Core software and helped to set up the virtual network required to use and mine bitcoins. It is a peer-to-peer payment system with no central power structure or administrator lording over the minions in a central bank fashion.
Bitcoins can be bought for regular cash, products or services. Individuals and groups of ‘miners’ can also earn new bitcoins by mining for them, which is achieved by using computing power to solve complex problems. This includes maintaining what is called the blockchain which is a public distributed ledger of all existing bitcoins. It sounds complicated and it probably is, but if you’re simply going to use this virtual currency as a method of accepting payment for products or services then you really don’t need to know every little detail. I’ll go into bitcoins in more detail in future posts.
There are now bitcoin ATMs (automated teller machines) starting to appear around the world where you can exchange real cash and bitcoins. They’re in the early stages of development and will probably require much more regulation before they’re a common sight but it shows the massive potential of bitcoins.
Bitcoins are kept virtually in an online wallet which is basically a record of your bitcoins created on the block chain transaction ledger. Your ownership is proven with a private key relating to the address of your mined bitcoins. If you lose this private key you lose your money.
Personally, I love and hate bitcoin. In an ideal world I think a virtual currency would be great, but we don’t live in an ideal world. We live in a world run by psychopaths and a digital currency could be used to control and manipulate people more easily than cash. But I don’t think cash or fiat currency is much better as it is designed to lose value over time. There may be money to be made investing in bitcoin but I think I would sleep more easily owning physical gold or silver. It has already been through several booms and busts in its very short lifespan so I wouldn’t bet the house on it. As a payment system it’ll become harder and harder to ignore as it gains popularity. If people want to use bitcoin to buy goods from you, allow them! The customer is the boss.
I won’t ramble on too much about bitcoins in this one post though as I’ll look into them in more detail in future posts. We can look at how to mine bitcoins, how to use bitcoin as a payment system, and how to invest in bitcoins.