Bitcoin, an online, anonymous currency, represents much more than a new way to interact with online venders – it brings a new question to monetary policy and simultaneously provides internet anonymity in an unprecedented way. By providing a secure outlet for online transactions, it serves an invaluable service to internet shoppers and Silk Road enthusiasts. However, the currency is extremely volatile, and its value is almost constantly fluctuating. It is also extremely hard to get your hands on bitcoin – you have to jump through hoops in order to create an online “wallet” to store your coins in, trust that whichever exchange you purchase your bitcoins from will actually deliver, and be prepared to lose a lot of money if its price plummets. Yet all things considered, it’s awesome, and here’s why.
1. It’s completely transparent
All bitcoin transactions are stored in a ‘block’ and then added to the general ledger of all previous transactions. After all exchanges in a period are compiled into a block, they are encrypted using a hash function, or an algorithm that translates a ‘key’ into a ‘value.’ So each transaction is recorded as the ‘key,’ and its representation, the ‘value,’ is stored in the general ledger. So after the list of values is published, its impossible to change the keys without altering the fundamental formula, that is changing the entire list of transactions. As a result, the transactions can be viewed publicly while simultaneously remaining essentially immutable.
2. You can do all kinds of currency-ey stuff with it
Are you feeling lucky, punk? Well, if you need something to invest in too, then you can roll the dice with bitcoin. You can even store your investments in a bitcoin trust, like Bitcoin Investment Trust. However, the currency is extremely volatile, and has recently gotten a significant amount of press for dropping value.
3. The Silk Road uses bitcoin
Recently under increased spotlights, the Silk Road is an online exchange in which you can purchase and sell items completely anonymously. After a scandal in which the Silk Road was temporarily shut down, the ‘Silk Road 2.0’ was launched and the site is now back up. Because of the secrecy and security of the market, a user can find items that aren’t conventionally sold in stores. However, you must use bitcoin to complete these online transactions in order to retain the anonymity of buyers/sellers.
4. There will only be 21 million bitcoins, ever
Instead of being produced at a constant rate, bitcoin is ‘mined.. That is, it is rewarded at a fixed rate to individuals who help support and build the bitcoin network. Remember how bitcoin transactions are saved and processed through a hash function? Well those algorithms are extremely complex and become increasingly difficult to create, and a common way of mining for bitcoin is writing those hash functions. However, once 21 million bitcoins are awarded, no more will be created, ever. Whereas other currencies are tied to world economies, bitcoin relies on the creativity and ingenuity of its users.
5. The Silk Road uses bitcoin
Let me reiterate this – you can buy almost anything with bitcoin.