First, I want to start by saying by no means am I an expert on this subject. I have been doing some research in hopes to better understand something for the mere purpose of writing this article. I by no way endorse or support the theory, application or "world" of BitCoins, as well as this is not a sponsored post.
I'm sure you know what a US Dollar is. Until 1971 the U.S. dollar was backed by gold...you know Fort Know...we all saw Bugs Bunny as kids breaking in and swimming in gold right? When the US decided no longer to back our money system by actual gold (also known as leaving the gold standard) every major world currency has followed. So you might be asking yourself what backs our money now....simply our faith in the currency and peoples willingness to accept it in exchange for goods and services. Why was the gold standard important? Because having our money backed by gold helped insure a relatively low level of inflation.
Now that you understand how our money works let me make this even more complicated. Have you heard of digital currency? Have you heard of the BitCoin? If not hold on tight because I'm about to tell you something that sounds like a crazy science fiction movie.
A BitCoin is a new currency (first Developed in 2009) that is completely digital. It's not controlled by any government and can used to buy services and goods just like money. They are claimed to be safe, secure and anonymous. The BitCoin network is designed to mathematically generate no more than 21 million BitCoins and the network is set up to regulate itself to deal with inflation. BitCoins can be spent by initiating a transfer request from a BitCoin address in the customer's wallet to a BitCoin address in the vendor's wallet. So it's in a way like PayPal. You can send your BitCoins to another person or business all digital. There is a very low transaction fee which goes to the miner. Confused?? Well that's not even the half of it. Let's talk about what a miner is.
First understand most BitCoin users are not miners. Mining is the business side and from what I have read very competitive. Miners collect the transactions on the network, such as if I sent you money...that's a transaction. They then take those transactions and put them into groups they call "blocks". They then take these blocks and create chains ( now remember this is all mathematical..gee I wish I had done better in math). They do this otherwise people would be able to sign the same BitCoins over to different people. Kind of like having $20 dollars in your account and writing 5 different people a $20 check...not good.. The block chain lets you know for sure exactly which transactions count and can be trusted. By making it hard to produce a block and then a block chain they can make sure that they are legitimate. This deals with a lot of math and coding but is the backbone to keep the network secure and running. BitCoin "miners" are just running computer programs on very specialised hardware that automates the process of securing the network.
Of course this is a basic overview and I could go into a lot more detail...well if I understood it better I could...but you get the picture here. Why does our government not like this? Well for starters there is no way to tax or track who is buying or selling. Make matters worse is that there has been many cases where BitCoins are being used in illegal transactions such as illegal drugs. Without being able to trace who sent who what you can only imagine the headache, and safety issues, that this can cause. Who is buying Bitcoins...well so far 90% of buyers are said to be speculators. When a speculator buys them they simply drive up the price which can cause a false positive and make something look more valuable than it really is. Then the inevitable bubble comes along and since BitCoins are not backed by anything the value drops. So if you put $1000 into your coins and the value drops you know could have only $25 left from your investment of $1000. It runs in a manner like the stock market...ever followed oil and gas? Of course all the pro BitCoin articles and sites say that there is no way this could ever happen and the goal of speculators is to buy something that increases in value.
The driving goal of BitCoins is to establish a one world currency free from government and free from regulation. Is this a good thing? It seems as I have done my research that the subject of BitCoins is polarizing...either you love it or you hate it. I know I have my own opinion of BitCoins and the theory behind it. What are your thoughts? Have you ever heard of BitCoins before you read this article?
Information for this article was pulled from many sources. Main information was pulled from the following sites but by no means is limited to only the ones stated here.
We Use Coins http://www.weusecoins.com/en/
StackExchange http://bitcoin.stackexchange.com/
Start Bitcon http://startbitcoin.com/