Although the digital currency bitcoin debuted four year ago, it had not garnered much attention until recently. Its growing popularity has made headlines lately because it is not affiliated with any central bank or company.
According to the website www.WeUseCoins.com, more than 100,000 people are using it around the world to trade hundreds of thousands of dollars worth of bitcoin every day with no middle man and no credit card company. It is likened to credit cards and online banking networks; it is a balance stored in a network.
Anyone can buy bitcoins at one of the bitcoin exchanges. Similarly, merchants can accept payment in bitcoin. A few well-known merchants where bitcoins are accepted are the websites Etsy, Wordpress and Reddit. But its acceptance is expanding outside of the Web. There is a car dealer in Kansas City that recently began accepting them. And there was even a man in Alberta, Canada, who, in an effort to sell his house, was willing to receive bitcoins as payment, according to a March article on www.Mashable.com.
Similar to non-digital currency, the value of bitcoin is determined by supply and demand. But www.Bitcoin.org states that although bitcoins could lose their value entirely, “as a payment tool, bitcoins are like gold because bitcoins are no one’s liability and bitcoin transactions are not subject to the same counterparty risk like traditional banks engaged in fractional reserve banking. Thus, using bitcoin can help protect merchants and users from bank failures and Cyprus-style problems.” Hence, its growing popularity.
There is even a “bank” for the digital currency: Flexcoin. When someone sends a bitcoin, it is only accessible from the device it is initially received on, but Flexcoin acts as a central location for a person’s bitcoins and, thus, as one of the world’s first bitcoin banks. People can use one account to access all of their bitcoins, from any Web-connected device.
Bitcoin’s growing popularity has caught the attention of the U.S. government. It is concerned about security and about organizations using it for illegal activities because transactions are anonymous. In a report, the FBI stated, “The FBI assesses with low confidence, based on current user and vendor acceptance, that malicious actors will exploit bitcoin to launder money.” And in March, FinCEN released interpretive guidance on the applicability of virtual currencies as they pertain to the Bank Secrecy Act.
There is also mild concern that a digital currency could some day overthrow fiat currency. But for right now, bitcoin is still in its infancy and digital currency is mostly just an interesting — and a bit strange — idea to ponder.
To learn more about bitcoin and how it could change the financial industry — or why it won’t — click on the links below.
Kari English is senior editor of BankNews.
Copyright (c) May 2013 by BankNews Media