What Exactly Are Bitcoins and Are They Right For You?

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This is a post by MPFJ staff writer, Jeff. Jeff writes about Sustainable living and finances at his website, Sustainable Life Blog. Jeff really enjoys traveling with his wife as much as he can, to wherever he can.

If you’ve been poking around the news lately, it has been pretty hard to avoid hearing something about bitcoins. I vaguely knew what they were before a few months ago, but this week, they have just been all over the news. I figured that lots of people would be curious, so here’s some information on bitcoins.

What is a bitcoin?

A bitcoin is a currency unit (like a dollar) that is not backed by a central bank or country, but instead is a decentralized currency that you can use to pay anyone, anywhere, for anything. There is a set amount of bitcoins available (~21 million) and you can earn them by lending your computer to do complex computations that ensure that the bitcoins currently being spent are legit (this takes quite a while to earn a bitcoin from) or you can buy them on the market at the current trading price. While I’ve never mined a bitcoin, there’s been lots of speculation that it costs bitcoin miners more in energy to get a bitcoin than a bitcoin is worth. All bitcoins have a transaction history (that can be kept anonymous), so bitcoins are difficult to forge.

What Can I buy with a bitcoin?

Well, you can buy anything with a bitcoin, but as of now not many retailers accept them as payment. You can pay friends back with them or the like. However, because they are untraceable, they are frequently used for trade in drugs and guns.

Why Bitcoins?

Well, as of the writing of this article, the price of bitcoins was surging (and crashing) over economic news such as the Bank of Cyrpus depositors funds being converted into bank shares over certain amounts, and speculation about the future of the currency (people buying bitcoins because they thought the value would rise, not so they could spend them). Another reason is that people are looking at bitcoins because of the QE policies that were enacted after the “great recession” around the world.

How to Use Bitcoins?

To use bitcoins, you first need a bitcoin wallet, which you can download for your smart phone or your computer off of the Internet. This will allow you to make bitcoin transactions with anyone else online, pending they also have a bitcoin wallet for you to send them bitcoins. You can send just about any bitcoin (BTC) denomination (down to .0000001 BTC). There are no fees associated with most transactions, and small fees associated with some of the transactions, depending on the size of the transaction. You can also invest in bitcoins (like the famed winklevii twins)

For me right now, I don’t plan on purchasing any bitcoins or using them – it’s just kind of something interesting that’s going on in the world that could change the way that currency changes hands in the future. It’s interesting to see how (if at all) it will effect traditional fiat currencies going forward.

How about you all? What do you think about bitcoins? Have you heard of them or used them at all? If so, what did you think?

Share your experiences by commenting below!

***Photo courtesy of http://commons.wikimedia.org/wiki/File:Bitcoin.png

Comments

  1. Right now, they are good for highly risk-tolerant speculators. I'd also add to the recommendations that you use MtGox or keep the bitcoin on a usb drive, safely detached from the computer, when you aren't actively buying and selling.
    My recent post Savings Strategy: Best of the Worst, or Worst of the Best

    • sustainable living says:

      Agree jenny, though these are far too risky for me!
      My recent post Planning a Backyard Garden

  2. brickbybrickinvesting2012 says:

    I've heard of them but have paid them almost no attention. They are literally backed by absolutely nothing so you in my opinion you'd be better off owning the U.S. dollar instead.
    My recent post Investing Is War

  3. Greg @ thriftgenuity says:

    I have heard of bitcoins, but that is about it. Reading the info here, I think I have a number of other types of investments to get into before something like this. Unless my need for drugs and guns goes up 🙂 .
    My recent post Caf

  4. I've heard of them a lot more recently – seems interesting for sure but I don't think I can use them easily here!
    My recent post How I Bank In Grenada

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