Bitcoin – what is it?

What is Bitcoin?  In simple terms, Bitcoin is digital money.  Bitcoin can be purchased.  Bitcoin can be used to buy things just like real money IF the selling merchant will accept Bitcoin as payment.  Some merchants do accept Bitcoin but they are very few.

Should you worry about Bitcoin?  Probably not.
There are no governments supporting or endorsing Bitcoin.  At the moment, Bitcoin is very highly speculative – it’s value is only what you can get for it.  In a sense, Bitcoin is fantasy money.

Bitcoin is analogous to gold.  Bitcoin has a strictly limited supply – it is still being created through a mathematical formula.  The Bitcoin formula has an end termination point after which there will be no new Bitcoins produced.
That is why it is analogous to gold – it is finite.

Up until 1971 the US government used a “gold standard” to which they pegged the value of the dollar.   By cancelling the gold based US dollar it allowed the US government to manipulate values of the dollar and other commodities.
Today’s dollar is worth 19 cents compared to the dollar of 1971

No country in the world currently uses gold as a standard for their money.  Gold is too honest for politicians.  Thus, through currency manipulation, politicians can “create” an illusion of wealth – though for a limited period of time.

Bitcoin is not endorsed by any government.  China recently pressured Baidu (their equivalent of eBay) to stop allowing the use of Bitcoins for currency.

Bitcoins will continued to be used but its future value is uncertain.  Any public panic over the use of Bitcoins could send it’s value any either direction – up or down.  Without a government endorsement, the value of Bitcoin is highly speculative.

One theory suggests that the future of Bitcoin currency may develop in a way that is comparable to the way email developed in relation to postal mail.
Today both email and postal mail coexist side-by-side.  Bitcoin theoretically could co-exist with physical currency.

How Bitcoin plays out in the next few years remains to be seen.  Government intervention and prevention could damage or destroy the use of Bitcoin.  Or perhaps a black swan event will develop in which Bitcoin replaces today’s currency.
Time and events will tell.

For more reading:
Bitcoin from the wikipedia
Getting started with Bitcoin
The US gold standard ending
A Bitcoin discussion forum (not endorsed by this website)

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