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NOTE:  Items highlighted in RED are defined elsewhere in this Glossary, while items highlighted in BLUE are site links for further information.

WHAT ARE THEY?

HOW DID THEY START?

HOW DO YOU GET THEM?

HOW SAFE ARE THEY?

HOW ARE THEY CREATED?

HOW DO YOU KEEP YOUR BITCOINS?

HOW DO YOU SPEND THEM?

WHERE CAN YOU SPEND THEM?

HOW CAN YOU EXCHANGE THEM?

HOW MUCH ARE THEY WORTH?

THE TRUST ISSUE

WHO REALLY BUYS BITCOINS?

AREN’T THE GOVERNMENT AND BANKS FIGHTING VIRTUAL CURRENCIES?

WHY DOES BITCOIN VALUE INCREASE?

COPYCATS

WHAT ARE THEY?  The most popular of several virtual digital currencies (like Second Life “Linden Dollars” or World of Warcraft gold) originally among geeks and now others, the value of which fluctuates as it is set by the open market and not any government entity, which is used to make purchases over the Internet for just about any product or service imaginable. 

HOW DID THEY START? The project was started in 2009 by someone who identified himself as Satoshi Nakamoto [almost universally thought to be a pseudonym for several inventors] has become kind of a “Where’s Waldo” game, with his identification as a Japanese writer, an Irish cryptography student (Michael Clear), a 64 year old man of the same name living in San Bernadino, CA (according to a 2014 Newsweek article), Japanese American mathematician Shinichi Mochizuki, Jed McCaleb (who started the world’s largest Bircoin exchange), Nick Szabo (another cryptographer who worked on digital currency before Bitcoin was invented) and lately Craig Steven Wright ( a 41 year old Australian academic).  All have been pretty much debunked.  Or have they?  The management of the project was taken over early on by “Chief Scientist” Gavin Andresen (a real person, for sure, also sometimes thought to be Nakamoto).  The currency code is “BTC” and the symbol is a capital “B” with two vertical bars through it (bitcoin symbol), much like the Euro symbol Euro symbol

The very first Bitcoin transaction was said to be the purchase of two pizzas, reportedlyBitcoin logo at the price of 10,000 Bitcoins (at that time barely worth a penny).  But they have  been used for everyday purchases, like burgers and drinks, and even homes and cars (like the $103,000 Tesla purchased by a Florida man in 2013 for 91.4 Bitcoins). On the dark side (see below for more) it’s rumored that, because they’re untraceable, Bitcoins have also been used in drug transfers, transmitting porn and other illegal transactions.  Some ransomware viruses request payments in Bitcoins (like CryptoVirus, see Security for more; further discussion below...).

HOW DO YOU GET THEM?  You can obtain Bitcoins by accepting them as payment, purchasing them on a “Bitcoin Exchange,” trading cash or other currencies for them or participating in a group known as a “mining pool”.  [Click HERE for the source code download.]  But don’t think that you can download the program, purchase a computer and begin printing money.  That phase of Bitcoins has passed.  Now there are whole computer systems being sold for this purpose and all the big boys are involved, squeezing the little guy out. 

HOW CAN YOU EXCHANGE THEM?  There’s already at least one ATM for this purpose, situated in Vancouver, BC., and 21st Century Bitcoin Exchange plans Bitcoin ATMs in Australia, starting in Melbourne (they’re also discussing government regulation of the Bitcoin market in Australia).   Robocoin, the Las Vegas company that makes the ATMs, has plans to install them in early 2014 in Seattle and Austin, Texas, among other places.  Here’s how it works:  To create a Robocoin account, a user enters their mobile phone number at one of the kiosks. The machine sends a code to that phone and, after the user enters the code, they are asked to scan the palm of their hand. The phone is the user ID and a palmprint is the password".  The user is then asked to insert a driver's license or other government-issued ID, further personalizing their account, as well as providing Robocoin an opportunity to verify the user's name against government watch lists for terrorists or others who may not legally do business in the machine's home country. After that, the user takes a photo at the kiosk, which must be verified as a match with the picture on their ID card.  Once the account is verified, a process that takes two to five minutes, the user is free to buy Bitcoins at the kiosk. Customers may either transfer them to an account, using a private code the machine dispenses, or use a smartphone app to store them on their phone.

Berlin has been called the “Bitcoin capital of the world” because of the ease with which the virtual currency can be exchanged.  And companies like BitInstant, created by Charlie Shrem and Gareth Nelson and invested in by the Winklevoss brothers, allow its customers to purchase the digital currency from more than 700,000 stores, including some WalMarts as well as bars like Ever (owned by Schrem) and other places in New York City.

WHERE CAN YOU SPEND THEM?   Over the past years, places accepting Bitcoins for payment are popping up everywhere.  Internet companies like Overstock.com accept Bitcoins for payments.  Charlie Schrem’s N.Y. bar, Evr, accepts them, of course.  Venture Capitalists like Andreessen Horowitz (led by Netscape founder Marc Andreessen) have invested $20 million into Coinbase, which provides digital “wallets,” in addition to the $5 million funding from Union Square Ventures.  And in 2013, Sir Richard Branson announced that people would be able to pay for Virgin Galactic space flights using the currency.  TigerDirect not only accepts Bitcoins, but also sells the hardware to mine the coins.  eBay is starting to test them in its U.K. market.  Dell accepts them, too.  The Sacramento Kings basketball team, was the first major sports franchise to accept Bitcoin payments.  Earlier this year, a British BitTagcompany named BitTag has created a clothing tag which shows the price of the item in Bitcoin currency while updating itself according to market fluctuations.  (See photo at right.) And Cumbria University, among other educational institutions, will allow students to pay their tuition in Bitcoins.  Conversely, BitPay enables online merchants to obtain software and a service to accept Bitcoins as payment, and the fee is only 0.99 percent.  And there are many Internet directories listing merchants which accept Bitcoin payments, such as Reddit, Bitpremier.com and Spendbitcoins.com Even Time, Inc. accepts Bitcoins.

HOW SAFE ARE THEY? Bitcoin transactions between are encrypted, logged by a bitcoin up close1decentralized network running on thousands of mostly home computers, and recorded in a public ledger called an “account log” to process the transaction.  But unlike traditional banking transactions, Bitcoin transactions are untraceable.  There is no central bank or central list of Bitcoin holders, not just preserving privacy for Bitcoin holders but conversely making it a perfect venue for money laundering (much like Liberty Reserve, the online currency exchange, which is being prosecuted in 2013 as the largest international money laundering venue in history).  There is, however, an ongoing list of transfers (without owners’ IDs) which can be publicly accessed. See, blockchain.   Some theorize that the Bitcoin crash of April 2013 was caused not by the Cypriot government, but by manipulation by organized crime to make a profit.  For more, see Trust, below.

HOW ARE THEY CREATED? A so-called “miner” creates the Bitcoins by using a computer which has downloaded software known as the “Bitcoin client” to solve difficult cryptographic problems to verify transactions  (hence the designation “cryptocurrency,” first described in 1998 by Wei Dai); as more Bitcoins are created, about 3,600 a day, the problems become increasingly more difficult.  Nodes on theBitCoin logo Bitcoin network are awarded blocks of Bitcoins each time they find a solution.  (Again, see blockchain.)  The process is programmed to create a block about every ten minutes, with each block starting with 50 Bitcoins and being reduced as more blocks are created, but this isn’t an exact calculation, and there’s much more to it.  Bitcoins are divisible to 8 decimal places.  The theoretical limit to the number of Bitcoins which can be created is a total of 21 million, but they can be “recycled” as they are traded in.  The miners follow the Bitcoin software protocol, which is continually updated.  [Below left, a photo of one of Asia’s largest Bitcoin mines, located close to Hong Kong, dominated by racks and racks of hundreds of ASIC chips, custom built to mine Bitcoins.]  But occasionally there are problems.  bitcoin mineIn late 2013, a malicious mining group of “selfish miners” attempted to “fork” the blockchain by creating a mining pool that would exceed the 25% limit on the number of nodes on the network in order to collect greater rewards.  But it was quickly halted by updating the protocol.  Also in late 2013, some hackers devised a way to create a botnet for mining Bitcoins, through which unwitting computer users had their machines hacked into providing background processing power to mine the Bitcoins without their knowledge.  At this point, unless you have a supercomputer, it’s almost impossible to mine for yourself.  It has been estimated (by Tarandeep Gill) that Bitcoin’s hash-rate (the total computing power of the network, defined as the number of SHA-256 hashes it can compute per second) has most likely exceeded the total computing power of all the world’s computers!

HOW DO YOU KEEP YOUR BITCOINS? The Bitcoins live in a bit of software known as your “wallet”.  There are two options for your wallet:  An online wallet, provided by MyWallet, Flexcoin, Bitcoin Wallet or InstaWallet, where you don’t have to install anything on your computer, but requires you to trust the site operator to keep your wallet safe.  A second choice is the Bitcoin Client, where you install software which you download from bitcoin.org onto your computer which will automatically create a wallet for you and then start downloading the transaction history after the first time it is used.  The client stores the Bitcoins locally on your computer, while the online wallet does not.  While there are Android and PC software wallets, there is as yet no Apple version.  But beware:  If your computer is hacked, your hard drive fails or you erase your hard drive, all of your Bitcoins are LOST.  The legendary story about the guy (Brit IT worker James Howells) who tossed his hard drive with some $7.5 million of hard earned Bitcoins on it (because his girlfriend said she couldn’t sleep because of the constant grinding of the hard drive) is true.  He never got them back. The hard drive is still sitting in a landfill.

HOW DO YOU SPEND THEM? Bitcoins are identified by a long string of letters and numbers and are not identifiable to a person or computer, so it’s completely private.  So, rather than a bill with a serial number like the ($900 million) in traditional currency, a Bitcoin is simply an entry in a log.  Unlike banks, your only record of how many Bitcoins you have is in your own wallet and only you can keep up with your current balance.  In order to spend Bitcoins, you set up a payment from your wallet (e.g. “355BTC” or some sub-denomination) to the Bitcoin address of your recipient and click.  Bitcoins can be divided into denominations up to 8 decimal points.   Therefore, 0.00000001 BTC is the smallest amount that can (normally) be handled in a transaction.  Every transaction has its own address.  (Occasionally, transactions may be charged a very low “transaction fee” relating to the data (not the amount) for the transaction and to make sure that the transaction is not a denial of service attack to the Bitcoin system.)  Your payment is sent and received (there may be a very brief delay, about ten minutes, not days like real banks) and your account log is appropriately adjusted.  Viola!  No middleman.  But be careful - Like a cash transaction, you can’t change your mind and cancel the transaction after it’s been made.

In late 2015, a startup named Shift changed things, making them easier for everyone, whether they’re on the Internet or off.   It rolled out a debit card that is capable of connecting to the account where you store your bitcoins (e.g. Coinbase), so you no longer have to inquire of a merchant if they accept bitcoins, they only need to accept plastic.  Presently, Shift cards are available in half of the states in the U.S. (not yet in Florida), but they’ll reach the entire country at some point. 

HOW MUCH ARE THEY WORTH?  Bitcoin’s worth fluctuates (sometimes wildly) with demand, and they can be bought and sold on several online exchanges, prompting its investment opportunity.  It works more like an investment market for virtual tokens.  You can check the current exchange rate HERE.  In a few instances, early investors became “Bitcoin millionaires”.  But, as Steve Forbes has said:  “Whatever it is, it’s not money!”.  Even Peter Vessenes, Chairman of the Bitcoin Foundation, the nonprofit that promotes Bitcoins, quipped “Never hold more Bitcoins than you’re prepared to lose”.  Former U.S. Federal Reserve Chairman Alan Greenspan has characterized the recent runup in Bitcoin value a “bubble” and about that he’s probably correct.  [When I put Bitcoin in my glossary in 2009, no one had even heard of it except for true cybergeeks and  they were almost worthless.  It’s only because they quickly shot up to “lottery” value that there’s been an equal upshot in interest.]

There are, as of 2013, about 11 million Bitcoins in circulation.  When they were created scarcely four years ago, they were valued at about 20 cents each.  Through 2012 their value increased from $5 to $13 or so.  But in March, 2013, the legend is that, when European finance officials approved an unprecedented tax on bank deposits in Cypress, citizens became concerned that other bank deposits might be taxed, ramping the price of a Bitcoin up to as much as $266 each, although the next day it fell to $125.  This, in turn, caused the largest online Bitcoin exchange, Japan’s Mt. Gox, to crash on April 10, 2013.  The next day, when it reopened, the Bitcoins traded at only $65.  Recently (11/13), rates surged to over $300 then over $600 a few days later, as a result of wider mainstream acceptance, extreme growth in China and the launch of Silk Road 2.0 (see Silk Road link, below), according to Time Magazine.    But by May 1, 2013, the price had doubled to about $120. Prior to that, there was also at least one panic-driven crash.  As  result of the U.S. Senate hearings (see more below) in November, 2013 (which were thought would cause their value to plummet) the price of the currency soared to $1,000!  And again, on February 24, 2014, Mt. Gox closed its offices.  This was the result of the 744,000 missing Bitcoins due to malleability related theft (thieves used the flaw to fool the transaction process into sending double the amount of Bitcoins), leaving the company insolvent, with $174 million in liabilities against $32.75 million in assets.  The exchange closed on February 20, 2014 and has not reopened.  In 2014, it had the worst year ever, falling some 76%.  By now you get the point:  Bitcoin trading can be quite volatile.  For more explanation, see the “Gartner Hype Cycle” and its application to Bitcoins.    And it’s an investment (more like a commodity or stock), not money.  It’s even even got its own derivatives market:  In mid-December 2013 Dublin-based Predictious unveiled Bitcoin Option Spreads enabling both long and short positions.  Side effect: Those ransomware scams that scare you into paying their fees using Bitcoins are getting more expensive, too, as Bitcoin exchange rates rise.  As a result, the ransom was later reduced to a fraction of a Bitcoin amounting to $300.  See the discussion below for the effect of government regulation on Bitcoin value.

It’s beyond the scope of this definition to track the current metrics for Bitcoins.  But someone has, and they’ve done it well and keep it updated.  Click HERE for the site for Accounting-Degree.org, which lists current stats for things like how many Bitcoins are in circulation, the number of daily transactions, how many are being used by country, their value, even the biggest Bitcoin heists in history, all in colorful graphic form.   UPDATE:  In the first eleven months of 2013, Bitcoins jumped 84%, but the hype faded in 2014, despite increasing acceptance by retailers and the general public and the enthusiasm of venture capitalists who sank millions of dollars into Bitcoin related startups.

THE TRUST ISSUE:  While digital transactions normally require a trusted intermediary such as Paypal or the U.S. Federal Reserve Bank, the difference with Bitcoins is that there is no such middleman.  Rather, the system works more like a peer-to-peer music sharing network. The elimination of a trusted middleman and any government regulation is both the the essence of the Bitcoin system but also its possible downside.  In good times, the trust placed with your bank or PayPal is an essential part of the transaction.  But in times when economies are faltering and many have now lost faith in banking institutions, the idea of trading anonymously in arbitrary tokens with the protection of pure mathematics doesn’t seem so far-fetched.  Aside from the elements of trust and reliability, many appreciate the fact that the transaction costs (compared to traditional banks) are zero and the delays associated with traditional banks (permitting them to make money on float) are eliminated.  For example, if you’ve tried to wire money through a bank, you know it can take days and cost fees at both ends.  Not so with a Bitcoin transfer, which is instant and virtually cost free.

In order to attack the trust issue, some have pointed to a technical loophole that allows users to insert a coded “message” into their Bitcoin database (much like the “memo” line of a traditional check).  However, porn links and other malicious items have sometimes been found in these links.  But they’re buried, written in hex code, can’t be read without a decoder and can be costly to insert.  Mostly, they involve harmless, quirky messages.  But it could be difficult to filter out or block these “Easter eggs” just because of a few messages that can’t really be decoded by just anyone.  [I’m wondering whether this isn’t an end run by the banks and/or the Government to debunk the trust of Bitcoins, since they use the traditional banking system regulations.]  Anyway, it’s reported that new versions of the Bitcoin software are now being developed that will allow historical transactions to be deleted; as it stands now, they stay around forever, with the embedded links.  There have been a few technical issues respecting the processing of Bitcoins, but they have usually been discovered before any damage and have been quickly corrected.  For example, in February, 2014, Mt. Gox discovered an issue with the way transactions sending Bitcoins to a third party were shown on a wallet, but they promptly worked on a fix.  Of course, later issues about malleability have caused Mt. Gox much bigger problems (see above), causing it to file for bankruptcy protection.  But even if Mt. Gox goes under completely, it won’t hurt the Bitcoin industry and may even help it’s security. Recently, a group of coders has lunched Dark Wallet, which makes it more difficult to trace transactions, because it uses both encryption and CoinJoin technology.  CoinJoin, like Shared Coin, essentially “mixes” multiple bitcoin transactions, selected at random, as one transfer of funds, concealing the original players.

WHO REALLY BUYS BITCOINS?  A 2014 online survey by Simulacrum, University College, London reveals a very specific profile:  93% are male, about 32 years old, many of which call themselves “libertarians”, typically early tech adopters, mostly white and mostly wealthy.  Almost no women. No real surprises, as men take more risks, are more technology oriented and must be relatively wealthy to put their wealth into a currency that isn’t widely accepted or even recognized.

AREN’T THE GOVERNMENT AND BANKS FIGHTING VIRTUAL CURRENCIES?  Of course.  Literally, follow the money.  Both have a lot to lose if virtual currencies become mainstream. It is arguable that the current increase in Bitcoin value is a bubble, but that doesn’t mean it’s demise, as it fills a unique current need that citizens demand, so it may well be here to stay, whatever the current value. 

THE GOVERNMENT:  At this point, they have now become common enough to hit the radar of the IRS and other regulators.  On November 18, 2013, the first congressional hearing about how to regulate virtual currencies took place before the Senate Homeland Security and Governmental Affairs Committee. Interestingly, testimony from Fed Chairman Ben Bernanke and others seem to back the new currency.  And, of course, the IRS has ruled (in Notice 2014-21) that Bitcoins are taxable, which means that they are assets, subject to capital gains tax when sold.  They could have ruled that it was a currency, but why would they, given the financial incentive of collecting taxes?

But there is also already some pressure and possible legislation leaning on the Bitcoin clearinghouses like Mt. Gox to provide information.  As the largest trader, this Tokyo company, which began as a venue for trading cards, has experienced many issues, resulting in its closing at least twice.   In May, 2013, the U.S. Dept. of Homeland Security seized $5 million of Mt. Gox’s U.S. accounts on the grounds that it believed that it “misrepresented the full extent of its financial operations.”  (And it lost another $5 million to CoinLab, its North American agent.)  And, of course, you may still be vulnerable (unless you can use an “onion” router, but recent revelations show that the FBI/NSA can hack them as well) if you use another currency to purchase or sell Bitcoins, rather than mining them.  The October, 2013 shutdown of Silk Road, and seizing of 26,000 Bitcoins from holders’ accounts from the alleged “eBay of drugs,” which used Bitcoin for payments may actually show either (1) that the FBI is removing the illegal activities run through Bitcoin and is making it safer and more legitimate, or (2) stockpiling its own majority of Bitcoins to eventually control (or shut down) the Bitcoin market.  If it liquidates the Bitcoins of Ross William Ulbricht, convicted and sentenced to life in 2015, that’ll be about 600,000 Bitcoins ($80 million) or about 5% of all Bitcoins in existence. (As of January, 2014, the government had taken about $28 million worth of Ulbricht’s Bitcoins.)   A few days later, Black Market Reloaded, Silk Road’s largest competitor, also shut its doors, leaving lots of Bitcoins out there as well.  In mid-February, Silk Road 2 admitted that the site had been hacked by one it its sellers and its reserve of Bitcoins belonging to its users as well as the site stolen, blaming a “transaction malleability” but in the bitcoin protocol. And in November, 2013, hackers stole 4,100 Bitcoins worth $1.18 million from wallet service Inputs.io.

The Government doesn’t like to be cut out of the currency loop - The NY Times reported that, during the week of August 12, 2013, the Senate’s committee on homeland security sent letters to financial regulators and law enforcement agencies across the country requesting information about perceived “threats and risks related to virtual currency”.  It claimed that “This is something that is clearly not going away, and it demands a whole government response.”  Similarly, the State of New York sent subpoenas to 22 companies that have any involvement with Bitcoins.  While NY expresses concerns over money laundering, after hearings on the subject, NY will be the first state to propose regulations for the oversight of virtual currencies this year.  This, as a result of Federal regulators deciding in March, 2013 that Bitcoin-related businesses can be handled as state-licensed money transmitters, which has caused a race by the states to assess their own laws and regulations on the subject of virtual currencies. [Being registered as a money transmitter under the Bank Secrecy Act with the federal government means that anything over $3,000 as to be reported to the feds. The U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) mean’s that money transmitters must install a chief compliance officer to sniff out possible money laundering.]

I’m not sure why parties can’t create some type of arrangement by which they credit and purchase from each other.  Is all this really about using alternative currency for illicit purposes or is it that the government is Charlie Schremlosing possible tax revenue?  In the long run, we’ll find out.  In January, 2014, the U.S. DoJ arrested Robert Faiella (BTCKing) and Charlie Shrem  (right), (of Bitinstant.com, of which the Winkelvoss twins are investors) charging both with money laundering, partly because some of the Bitcoins they sold were later allegedly used for Silk Road purchases.  In Florida, Michell Abner and Pascal Reid were charged with violations of Florida’s laws against unlicensed money transmitters and anti-money laundering statutes, but their defense is that Bitcoins aren’t currency, on the basis that the IRS considers them property, like shares of stock, and the U.S. Treasury memo on Bitcoins exempts individuals from the regulations for money transmitters.  (While these prosecutions target large Bitcoin transactions and possibly involve cases where the purchasers told the sellers of the use to which they would be put, it does seem to show that there is in fact some traceability to Bitcoin wallets and transactions on the part of law enforcement, doesn’t it?) 

Whole governments, as well, have banned Bitcoins.  For example, in December, 2013, People’s Bank of China (China’s central bank) as well as the nation’s IT ministry and financial watchdogs issued a notice banning its banks from selling, trading or storing Bitcoins and QQ (another popular digital currency) on the ground that it has no legal status or monetary equivalent. [But in 2016 they flipped their position, announcing their intention to create their own digital currency, joining the crowd on their own terms!]  In addition, China blocked local payment companies from providing Bitcoin clearing services, prohibiting accepting or paying out Bitcoins in yuan (China’s local currency).  Because China has the world’s largest Bitcoin exchange (BTC China) in terms of trading volume, it has caused Bitcoin value to tumble to half (about $425).  [Somewhat more quietly, around January 29, 2014, BTC China, the world’s largest bitcoin exchange, has started allowing users to purchase the digital currency with Chinese yuan and accepting renminbi, although the official Chinese government position remains unchanged as of yet.]  Russia has banned Bitcoins as well, declaring the ruble the only acceptable currency.

Seeing the trend, by 2016, many governments decided to join rather than fight the trend:  The People’s Bank of China says it intends to issue a digital currency of its own.  Central banks in Ecuador, the Phillipines, the U.K. and Canada are considering similar ideas as well.  It would be cheaper than printing bills and minting coins, provide an easier way to track trends in production and spending, would move seamlessly across otherwise incompatible payment networks and would benefit the poor, so that they could make payments or accept funds online without a bank account, something which has already started with special cell phone networks in some African states. On the other hand, there are always security concerns, the human propensity to overspend and government tracking of your spending and income to increase taxes and other purposes.

For an interactive map from CNNMoney about where Bitcoins are legal, illegal or just unregulated, click HERE.

THE BANKS:  They’re fighting mad.  They don’t want a world where all transactions are virtually free and person-to-person.  No fees, charges, interest or penalties.  Where your currency becomes worth more as you save it, not because of interest but through its actual increased value.  Where this increase in value may actually eradicate your loans or debts without any payments on your part.  To hedge their bets, some banks like J.P. Morgan (the nation’s largest) has filed a patent for an electronic currency with similarities (although not mentioning) Bitcoins to “make it easier to make electronic payments” to merchants and others.  But how does this prevent them from later levying charges for this service and how does it firewall users from the banking system? 

As a result of this squeeze, banks are fighting back.  The Internet is filled with real stories of incidents where banks have taken out their anger against Bitcoins:  Capital One closing a bank account over the mere mention of Bitcoins; various affiliate bank accounts closed by Chase and other U.S. banks because those banks also sold Bitcoins; most of Canada’s “Big 6” banks shutting down the accounts of anyone facilitating Bitcoin trading; banks closing down accounts of any company shown to be a Bitcoin payment processor; even individuals having their accounts closed for simply wiring money out of their personal accounts to purchase Bitcoins.

As one commentator stated in December, 2013:  “The war on Bitcoins has barely begun.  The amount of ammunition that traditional banks have to fight this war is vast, because their ammunition is your money”.

WHY DOES BITCOIN VALUE INCREASE?    Bitcoins are not a central bank currency where the money supply can be regulated (i.e.. manipulated) by government or corporate policies.  Rather, the supply is managed by an algorithm.  This algorithm insures that Bitcoins will always suffer from “deflation”.  The rate at which Bitcoins are created will slow down and eventually stop (see 21 million, discussed above).  Deflation dictates that, money becomes worth more and prices of goods and services fall.  This can hurt depositors at banks, but not those who leave their Bitcoins in their accounts to increase their value.  And as long as the economic activity creating monetary demand slowly increases, Bitcoins will always become worth more.  Subject, of course, to outside conditions affecting trust, like the Mr. Gox bankruptcy, above.  At the same time, banks will be cut out of the ever increasing number of fees, charges, interest and other income-producing devices that are irking depositors.

THE INEVITABLE COPYCATS: Of course, now that Bitcoins are popular, lots of other people are jumping on the bandwagon, trying to make their fDogeortune off of their own virtual currencies.  Examples:  Litecoin, Auroracoin, Amazon Coin, Namecoin, PPCoin, QQ, Dogecoin (which started off as a parody of Bitcoin, but became a meme popular in its own right [see its symbol, a Shiba Inu, a meme for dog] at Coinye1right) and even Coinye (using Kanye West’s name, at left).  Also, MazaCoin, the official currency of the seven bands that make up the Lakota indian nation.  Some are rather clearly established for less than legal transactions, some for niche markets (it’s hoped that Coinye will be used to purchase Kanye West performance tickets).

For even more comprehensive FAQs about Bitcoins, click HERE.

>>> As a result of a partnership between Coinbase and Google Finance, Google has updated its search engine to automatically display bitcoin prices and a price tracker on computers and smart phones.  Same for Microsoft’s Bing.  Look under currency converter.

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