In order to get Bitcoins, you need to exchange other currencies for Bitcoins (like dollars, euros, or pounds) at places like Mt.Gox. You can also sell goods and services online for Bitcoins. Some examples of Bitcoin stores include online gaming credits, pet wear, and coffee (more examples here).
OR, you can create a new ‘block,’ which is a series of transactions, and you will receive 50 bitcoins. This is very rare, however, and the value of creating a new block will decrease over time.
The idea behind Bitcoin is that it is a peer-to-peer exchange system, with an established and predictable rate of currency production. The creation of bitcoins is restricted by an algorithm, so the currency’s worth cannot be modified by any actor (banks, central banks, treasuries). Individuals are involved in “mining” for Bitcoins, but it is extremely costly and requires significant computing power.
Bitcoins could theoretically act as a store of value in the event of further inflation and devaluation of the U.S. dollar or other currencies.
There are several reasons one needs to doubt the Bitcoin revolution.
- Trust: Why would anyone trust a currency created by computers? While individuals doubt the value of the dollar due to the actions of the Fed, users are likely to distrust a currency they can’t understand, made by computers. It is likely such a currency would gain as confidence is lost in more traditional currencies.
- Use: In order for Bitcoin to become a legitimate currency, people need to be able to buy anything with it. Right now, they can convert Bitcoins into other currencies, and need to do that to buy many other items.
- Legal: If governments were to witness significant use of Bitcoins as a means of purchasing items, outside of their own taxable arrangements, it is unlikely they would accept such a reality. Legislation would follow, likely targeting businesses that accept Bitcoins.
- Hacking: Also, it appears you can hack one of the major exchanges associated with the currency.
- Bubble: The currency itself has been accused of being in “a bubble.” It has rapidly appreciated in value, and one is worth $7.29 on Mt. Gox. One BitCoin was worth around $2 in April.
Some have described Bitcoin as “the single biggest hope for the world.” That would seem a bit presumptuous right now, but its role, and the role of other currency alternatives, is likely to expand as people lose confidence in more traditional currencies.
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