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You Should Care About Bitcoin

By on April 4, 2013
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There is some debate around whether Bitcoin is a currency or commodity. The issue there is whether people are converting fiat money into Bitcoin in order to profit off its current meteoric rise in value, or whether they intend to actually spend it.

Bitcoin is to state-issued currencies – often referred to as fiat money – as P2P file-sharing is to traditional broadcast media. There is no centralized source for it that can be controlled or moderated or regulated. It is difficult if not impossible to track from the outside. It is more complex to use than its better-known counterpart, but there are at least theoretical advantages to doing so.

Each Bitcoin user has a digital wallet, which can be stored on a computer or a memory stick, or in a cloud-based service, or technically even on paper. The wallet contains a list of Bitcoin addresses, which in turn contain both public and private cryptographic keys that prove the holder owns their Bitcoins and is allowed to spend them. The addresses are pseudonymous, in that there is no registry of who owns which address, so Bitcoin is great for conducting untraceable transactions.

The limit on the number of Bitcoins also makes the system inherently deflationary. As the value of Bitcoin cannot be manipulated by a central authority, as long as the Bitcoin economy continues to grow (and as people lose their Bitcoins, removing them from the system) then it follows that transactions will take place in ever-smaller fractions of a Bitcoin. However, this shouldn’t be as much of a problem as it would be with a normal currency, because Bitcoins are infinitely divisible. There is currently a limit of eight decimal places (taking us down from “bitcents” to the “satoshi”), but even smaller fractions could be enabled in the future.

Let’s see what happens next, because the crypto-currency genie is out of its bottle.

http://gigaom.com/2013/04/04/yes-you-should-care-about-bitcoin-and-heres-why/

 

*Excerpt from GigaOm.  News article copyright David Meyer at GigaOm.

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