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Bitcoin, the popular virtual currency, is going mainstream with a quickly growing user base. Companies of all sizes are beginning to accept them as payment. Cheapair.com, Foodler.com, WordPress, a Subway sandwich shop in Allentown, PA, and the University of Nicosia in Cyprus are a few of the many mainstream institutions that accept the new currency in exchange for goods and services. The first ever Bitcoin ATM machine was recently built in Vancouver, BC.
This is one of the most disruptive innovations in finance since PayPal first introduced its service back in the dotcom era. There are now startups that offer services to store Bitcoins through virtual wallets (Coinbase), a Bitcoin exchange and trading platform (Mt.Gox), and mobile payment solutions solely for the virtual currency (BitPay). While the currency is fully legal by U.S. Government standards, other countries such as Germany and Canada have announced a form of taxation for the currency.
What exactly are Bitcoins and how can they be used?
Bitcoin employs complex mathematics, but it might be most easily understood as an innovative way to prove that money has changed hands. They exist almost entirely in the electronic world. They are generated by a decentralized network of more than 20,000 computers owned by Bitcoin users — all employing enormous number-crunching power to finish math calculations that yield Bitcoins when solved. This process is known as mining, and those who own the computer systems are called miners.
Bitcoins are exchanged between anonymous addresses that users can create every time they want to make a transaction. Buyers and sellers using cash and bank transfers to exchange Bitcoins congregate on large online exchanges where the value of single Bitcoins has been known to fluctuate by hundreds of dollars within a single day of trading. The convenience of a Bitcoin is the liquidity of the asset. However its biggest flaw is its susceptibility to online hackers who can use malware to steal Bitcoins from idle computers connected to the internet.
The reality is that the Bitcoin user base has gained too much momentum for the government to completely outlaw the currency. Of course there are cases where it can be abused since the currency is untraceable and there is no form of paper money or coin exchanged. However the public needs to be more aware of its usage, legality and how to safely store them if one chooses to conduct transactions using Bitcoins. Many venture capitalists and startup founders are using their influence in Washington to sway senators toward its legitimacy. Most likely it’s just a matter of time before it is fully legalized and federally taxable for everyday use.
For more updates on Bitcoins and other news in technology and finance, sign up for our newsletter. We will keep you posted on its momentum and legalities as new regulations unfold.
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