Despite the fact Bitcoins were found to be the currency of choice for one online kingpin to conduct drug deals on the Deep Web, and despite the fact the current market rate for ONE Bitcoin has risen from $0.75 in 2011 to an astronomical $1000 today - does not mean you shouldn't know as much as possible about this decentralized virtual currency.
Because like gold and silver, Bitcoins are a viable medium of exchange, since their value is dependent on real investment of human capital, labor and resources to produce peer-to-peer encryption algorithms forming a tangible currency - even though ironically you can't hold it in your hands - because it's all bit, and no coin!
According to Barry Elias at Money News, "the market value of the Bitcoin is determined by the global aggregate demand and supply, a decentralized platform that is less susceptible to centralized control, such as sovereign entities or powerful private interests."
Who Coined Bitcoins?
While the identity of the creator of Bitcoins is clouded in a mystery, computer visionary Ted Nelson thinks he's uncovered the answer. The person who coined "Bitcoin" and is thought to be its creator is "Satoshi Nakamoto." However like the fictional character Keyser Söze from the hit movie, The Usual Suspects," he's an enigma that's most difficult to pin down.
Satoshi NakamotoAfter supposedly producing thousands of lines of code and hundreds of posts on Bitcoin in 2009, Nakamoto sent a note to a developer in April 2011 saying that he had "moved on to other things." Later that year, the New Yorker and others tried to unravel the mystery, but came away empty-handed. In essence, Bitcoins are as cryptic as the crypto-currency itself.
Nelson's theory is that Satoshi Nakamoto is a pseudonym for Shinichi Mochizuki, a math professor at Kyoto Shinichi MochizukiUniversity. However his explanation appears purely speculative and isn't backed up by facts. In this video, he goes as far to claim that he's looked where others haven't and has used deductive reasoning - to solve the mystery - similar to Sir Conan Doyle's Sherlock Holmes.
How does It Work?
Nakamoto is said to have wanted to create a currency immune to the predations of bankers and politicians - one that was the first time controlled entirely by software.
Somewhat similar to a monetary exchange market, every ten minutes or so, coins are distributed through a process that resembles a lottery. In so doing, the bitcoin software is said to release a total of twenty-one million Bitcoins over the course of the next twenty years.
For more on the machinations of Bitcoins, the Mashable Explains features a video covering everything from Bitcoin mining to other advantages and benefits for the well-healed Bitcoin trader.
Can Bitcoin transactions be made in Fractions?
Since the value of one Bitcoin at present is trading at $1000, the question that arises is how can you make small purchases using one Bitcoin. To understand how this works, it's important to be aware that Bitcoins corresponds to addresses, which occur in the Bitcoin block chain. In its simplest form, think of a big database of balances for each Bitcoin address. In turn, your wallet holds a private key for each address, which can be seen as the password needed to spend the balance that is accredited to the corresponding addresss.
When you spend some bitcoins, you send them from one of your addresses to another address. Only the person that owns the private key corresponding to those addresses can spend the bitcoins on its balance.
Now, that still does not explain how bitcoins can be divided into smaller amounts of fractions. Well to make it as clear as mud, the Bitcoin protocol does not really work with the unit Bitcoin, but with a smaller unit, called Satoshi (yes, an obvious reference to the supposed creator of Bitcoins). In actuality one Bitcoin equals 100,000,000 Satoshi. So, voilà, one Satoshi is the smallest amount you can send - so, yes you can trade in fractions of Bitcoins.
So are you still in the dark?
Don't worry - you are in good company. A recent survey from TheStreet.com reveals that 76 percent of consumers are not familiar with Bitcoin -- and 79 percent would never consider owning a currency like it.
The jury is out whether this virtual currency is a good investment or a speculative trap? According to a Forbes report, "since Bitcoin is not tied to any country, the currency is theoretically more stable and suffers from less The Winklevii & Bitcoinspolitical risk." And as far as users, Forbes themselves accepts Bitcoins as a form of payment, as well as the online game-maker Zynga, venture capitalist Marc Andreeson - and most recently even the Winklevoss twins -- who notoriously accused Facebook's Mark Zuckerberg of stealing their idea -- have been "in dialogue" with the SEC about opening the first Bitcoin exchange-traded fund. Hey, if Dweedle Dum and Dweedle Dee see its value, who are we to question its merits?