Is Bitcoin a thing?

Yes, and let us explain the phenomenon. Everyone is talking about Bitcoin, and interest in the cryptocurrency has reached a fever pitch. Earlier this year Bitcoin reached $1,000 and has since increased to $19,000 by the end of 2017, so it’s with good reason that public interested has skyrocketed. The entire enterprise is complicated to say the least, and its humble beginnings in the technology sector dates back to 2009. The concepts source code was released to the public in 2011 with the objective of creating an entire new electronic cash system to help technology developers buy stuff from each other in the dark web. A novel way to engage in decentralized commerce that aimed to sidestep bank and government regulation. Bitcoin went a step further by anonymizing owners, and connected buyers and sellers through encryption keys –  issued by computers that “mine” the currency on the internet. What do we mean by “mine”? In other words, when a buyer makes a transaction using Bitcoin, a record of each transaction is recorded in what is called a “block”. Then all these records are stored/mined in a digital ledger that is largely know as a “blockchain” so that it can be be openly accessed by the Bitcoin community.

So the questions remains – so what? A bunch of geeks buying stuff from each other using a digital currency, and? The secret sauce is found in the mining of these blocks through a sequence of code know as a “hash”. Simple enough, but things get complicated when there are literally thousands of these miners competing to generate the only hash that will be used as the ledger of record for all these blocks. After the selected hash is released, it is placed at the end of the blockchain, and the miner gets paid for their work to the tune of $225, 000 or 12.5 Bitcoins. As with all things in an ever-changing economy, the value of the currency is determined by what consumers are willing to pay for it. So far, there is a limited Bitcoin mining supply that was established by it’s architect – 21 million of which 12 million has already been mined. We know, all this seems far fetched – straight out of a cheesy Scifi novel, but there’s legit gains to be made. However, let’s not kid ourselves – we’re not talking about preferred stock in a Fortune 10 company. So the real value of Bitcoin is open to interpretation and much speculation about future gains, if any.

Basically, it’s a volatile and purely speculative position. If we fancy buying some Bitcoins there are a few exchanges that have set-up shop to facilitate the purchase – the likes of Coinbase and Kraken are just a couple of the one’s worth mentioning. The process is fairly painless and mostly requires a PayPal account to make deposits to a virtual wallet to fund it. Once Bitcoins have been procured, there are plenty of merchants that accept the currency, and there’s the option to buy and sell them in the exchanges. For now, all of this is legal with no real regulation, and the transactions don’t incur any exchange fees for the most part. One area of concern is that Bitcoins can’t be traced back to an individual, so the buyers and sellers never really know whom they’re dealing with. A gray area that has been exploited in the past with dire consequences, if illegal things are done with it. Also, there are tax implications to owning Bitcoins – its been mostly categorized as property, so transactions of more than $20,000 must be reported. And recently, the Bitcoin mining community split into 2 separate blockchains know as “forking” due to a disagreement over the size of a block i.e. legacy miners wanting 1MB blocks and Bitcoin Cash opted for 8MB clocks – adding more complexity and risk to an already volatile environment.

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