I heard on the news recently that the Winklevoss twins (also known as the brothers who sued Mark Zuckerberg over Facebook) bought a huge amount of Bitcoins.
I had never heard the term “Bitcoins” before, so I was curious as to what they were. I quickly learned they are a form of digital currency that is decentralized and peer-to-peer based. With just the basic definition, I thought Bitcoins were the type of currency people who play online games use if they want to buy more lives or coins or plays (I’m not a big online gamer).
But a day later, Bitcoins were in the news again, but this time, it was because their value rose to a record high and then dropped suddenly in one day’s time. I realized Bitcoins were not the same as the online gaming currencies used.
Bitcoins, as I mentioned, are a digital currency. They are similar to the cash we use (dollars, etc.), but the main differences is that there is no central entity controlling the flow of Bitcoins like the Federal Reserve does for U.S. currency. (Note: I’m not a currency or fiscal policy expert, so I’m not familiar with all the details of currency control and how the Fed makes more money and puts it into the market).
The other major difference (that I can tell) is that Bitcoins are largely peer-to-peer based. You can pay others for services, products, etc. by simply transferring Bitcoins to their account. Even some small businesses are now accepting Bitcoins. Bitcoin transfers and payments come with lower fees simply because there is no middle man.
This is a very basic overview of what a Bitcoin is, mostly because I’m still trying to figure it out myself. But what really gets me thinking is whether or not digital currencies are the way of the future. A lot of people are speculating about digital currencies and saying that’s it’s just a fad and the market will eventually bust. But with everything turning to online and digital these days, it seems likely that our money will, too. Yes, we have electronic transfers of funds through our debit cards and credit cards, but those are controlled by financial institutions or companies, but by the consumer.
Even with their rise in use and future potential, Bitcoins and digital currencies are not without risk. Unlike financial institutions, there are very little consumer protections available. There’s also the risk that the market will bust and the Bitcoin will be worthless.
I don’t use Bitcoins, nor do I see myself using them anytime soon. But it’s definitely something to watch—it could be a big game changer in the way we earn money and pay for things.