Virtual Dough: 5 Questions About the Bitcoin Phenomenon

Image credit: Flickr by Zcopley
Unless you’ve been living under a rock, you’ve heard at least a mention of the latest trend in big money investments; Bitcoins. Unlike any traditional form of money, Bitcoins are a digital currency that is neither backed by a government or a private company. Instead, it is run by a computer code that only distributes new Bitcoins to people who set up their computers to “mine” the coins by solving complex calculations. Thanks to the perceived instability of many traditional currencies at the moment, this virtual currency is in high demand, causing its price to skyrocket. More than $1 billion in Bitcoins are currently circulating online, which is more than the value of the entire currency stock of 20 different countries. However, there are still plenty of questions about this new trend.

5 Is It Worth the Risk?

It’s hard to say. In fact, if we had the answer, we would likely be either buying or selling a buttload of Bitcoins right now rather than writing about them. Like any new investment trend, the Bitcoin market offers a lot of opportunity, but is also highly unstable and extremely unpredictable. Just remember - Bitcoins may be a virtual currency, but both their value and risk are very, very real. Invest wisely.

4 Is It Legal?

Technically, yes. The creation and exchange of the virtual currency has not been deemed illegal in any way. The same can’t be said, however, for what some people are buying with Bitcoins. Because the currency can be exchanged anonymously online, it offers a digital equivalent to trading in hard cash, which has led to the purchase of illegal goods on what are essentially digital black market websites. And nothing promises to bring government involvement and regulation faster than proof that the new currency is being used to facilitate illegal activity.

3 Is It a Bubble?

Any time investors flock to a new opportunity, especially one that proves to be quite unstable in its early stages, you have to wonder; when is the bubble going to burst? Many believe that the drastic value changes, issues with hackers and the inevitable involvement of the government will likely burst this bubble sooner than later. For now, Bitcoins serve as an alternative to a traditional currency and a way to forego government involvement in your finances, but once this becomes even remotely regulated, the entire market for it will quickly change.

2 How Much Are They Worth?

The price of Bitcoins has fluctuated wildly, leading investors to buy and, at times, sell in droves. At its peak, the currency has been worth as much as nearly $250 per coin, an astonishing number that peaked the interest of many investors. However, the relatively new currency has also lost 20-60% of its value in single days. So while throwing all of your money into Bitcoins may be an intriguing investment option, its big swings prove that it’s not for the faint of heart.

1 Who Started It?

Actually, no one knows. The person who claims to have created the technology and system for earning Bitcoins has elected to remain fairly anonymous, going by a fake name and offering a very vague backstory. It could be one person, or even a group of people, who currently goes by the name Satoshi Nakamoto. It is an identity that has no records prior to the creation of Bitcoins, and is widely believed to be a collective pseudonym.