ALL YOUR QUESTIONS ABOUT BITCOIN ANSWERED

Photo: Whitez

There’s a relatively new financial buzzword swirling around in the undercurrent of the internet lately: bitcoin. Maybe you’ve never heard of bitcoin, but even if you have, chances are that you’re still a little foggy on what it really is, how it works and if it’s anything more than just something for internet geeks.

Bitcoin might not be completely mainstream yet, but it could be just a few years before it or another digital currency plays a defining role in finance. Before this cryptocurrency revolution grows further, read on to learn a bit more about digital currency and what it means for traditional methods of banking and the economy.

What Is Bitcoin?

Bitcoin is, very simply, the most popular of many virtual currencies that recently became known to the public. It first appeared in 2008, the brainchild of an unidentified programmer or programmers under the alias Satoshi Nakamoto.

The currency is entirely digital: It’s a number stored in the cloud and associated with the holder’s bitcoin address. Bitcoin uses computer networks to verify and keep records of the transactions made. Unlike traditional paper currency, no central bank makes decisions that control the supply. Value is purely dependent on the confidence people place in it and what they are willing to trade for it.

Although there are lingering doubts about the legality of anonymous transactions, bitcoin can already buy things like web hosting or a Subway sandwich — you can even use bitcoin on Overstock.com, one of the first major retail sites to adopt the currency officially.

The Philosophy Behind Bitcoin

The idea behind bitcoin is to take financial control out of the hands of governments and central banking authorities and put it into the hands of the general public. The digital currency is entirely independent of any country and, therefore, not subject to any regulations.

This freedom from regulations makes bitcoin a cheap and easy way to handle international payments. Additionally, many transactions made with bitcoin don’t have any sort of fees associated with them like credit and debit transactions do, and users can purchase goods completely anonymously.

How to Earn Bitcoins: Mining Bitcoins and Using Bitcoin Exchanges

If you’re interested in purchasing bitcoins you can go to an online exchange, Mt. Gox being the largest, and purchase them with any currency. After you’ve acquired your bitcoins, they are stored in a “digital wallet” which basically consists of numbers in the cloud tethered to your account.

The bitcoins themselves, which are limited in number, are created by people using competing computer algorithms to solve math problems, a process called “mining”, the solution to which earns them a bitcoin reward. Since bitcoin is without a central authority, it is not insured by the FDIC. So, in the event that your digital wallet is pillaged, infected with a virus or otherwise affected, there would be no legal recourse for recouping those losses.

Effects of Bitcoin on Financial Policy

There are many questions regarding how governments and financial institutions will handle bitcoin. Some of the concerns regard taxation and the relative ease of partaking in illegal activities by paying with an anonymous and untraceable currency.

In October of 2013, the FBI shut down an online exchange called the Silk Road through which bitcoin was used to buy and sell drugs and other illegal goods. Currently, the digital currency is seen as a risky and volatile investment with the U.S. Security and Exchange Commission warning people against investing.

Other Types of Digital Currency

Bitcoin isn’t the only digital currency out there, although it is one of the most successful. Some other currencies include:

• litecoin, which can be used at some online retailers,
  
  
• peercoin,
  
  
• mastercoin,
  
  
• namecoin,
  
  
• dogecoin, which made its debut in 2013, is in faster production than other digital currencies. Its influence is expanding, but its value is still very low. It takes almost 3,000 dogecoins to equal just one U.S. dollar.
  

Governments and banks worldwide are taking bitcoin and other virtual currencies very seriously. Traditional money is regulated according to strict guidelines in order to control inflation and keep world economies stable.

Another factor worthy of note is security. Whereas money, in a traditional form of currency can be tracked and backed by banks, other financial institutions and governments, bitcoin cannot. A collapse in the bitcoin market like the one that hit Mt. Gox in early 2014 could be catastrophic to economies on a larger scale.

Though the fate of bitcoin remains to be seen, digital currencies could well be the wave of the future.

This article was contributed on behalf of FuelFX.

9 ALTERNATIVE CURRENCIES THAT ARE EVEN CRAZIER THAN BITCOIN

Photo: btckeychain

Bitcoin has continued to make headlines as it grows in popularity and notoriety. The virtual coins serve as an alternative currency, praised for their innovation and convenience, but also often criticized for facilitating criminal transactions due to their lack of regulation.

But is there an alternative to Bitcoin? There are in fact dozens. You won’t be able to keep any in your checking account, but perhaps you’ll find one of these nontraditional currencies can actually help your finances.

1. Amazon Coin

In February of this year, Amazon announced the launch of Amazon Coin, an alternative currency devised for virtual use by Kindle Fire owners.

Users can buy Amazon approved apps for their devices using Amazon Coin with the goal being to encourage more spending by Amazon customers. Since there’s no need to enter credit card information each time, this is intended to spur the creation of more apps by developers. One hundred Amazon coins are worth one dollar. Amazon says Coin users save up to 10 percent on apps and games.

2. Litecoin

Litecoin was developed as an alternative to Bitcoin with the primary difference being Litecoin can be “efficiently mined with consumer grade hardware,” according to Litecoin.org.

CipherMine, the company that produces Litecoin, saw shares skyrocket by 500 percent June 24 when it went public on the LTC Global Exchange, according to The Wall Street Journal. At the time of the IPO, one Litecoin equaled about $2.70.

3. Starbucks Stars

Stars are the alternative currency exclusive to Starbucks. Users with a Starbucks Card can earn Stars by buying drinks and food which are then used to buy more drinks and food.

According to the Starbucks website, Stars are earned by paying for purchases with a registered Starbucks Card, Starbucks mobile app or by entering special Star codes from certain grocery store Starbucks products. Perks of paying via Stars rather than traditional currency include a variety of freebies awarded according to a tiered structure.

4. Equal Dollars

In July 2013, Forbes reported that the Resources for Human Development (RHD) developed its own alternative currency known as Equal Dollars.

RHD is a nonprofit organization that provides services to people with developmental disabilities, mental illness or addictions, as well as the homeless. Its Equal Dollars are one of several hyperlocal currencies in existence, and are earned by volunteering in the Philadelphia area. Equal Dollars can be spent on goods from local businesses. According to Forbes, 25 Equal Dollars are provided to volunteers who donate between one and four hours of their time.

5. Laundry Detergent

This isn’t some codename for a secret, underground form of currency. Household Tide laundry detergent, the kind you buy at the grocery store, has emerged as an alternative to cash, primarily among drug dealers.

A report by The Daily broke the unbelievable story of organized groups of shoplifters stealing cases of Tide detergent to be used as street currency for crack. The reason: It gets $5-$10 on the black market, and unlike cold, hard cash, is virtually untraceable.

6. Canadian Tire Money

The Canadian Tire company established its own form of currency which come in denominations ranging from 5 cents to $2. Founded in 1958, Canadian Tire boasts Canada’s oldest loyalty reward program and, in fact, has become an accepted form of tender at a number of Canadian businesses because of the company’s universal presence. More than 1 billion Canadian Tire Money notes have been in circulation, according to the company’s website.

7. WIR Franc

The WIR Bank of Switzerland developed its own WIR Franc in response to the global depression in 1934, as explained in a news report from Italy’s national public broadcasting company, RAI. Meant to circulate in tandem with traditional currency, the WIR Franc was founded by 16 individuals and now circulates among more than 60,000 enterprises.

The WIR Bank explains that this currency does not exist in physical form, and transactions are performed via a debit card, checks or online banking.

8. Linden Dollars

Linden Dollars are an alternative currency developed for use within Second Life, a virtual world that serves as a popular online community. Second Life users can exchange real dollars for Linden Dollars, or earn them by selling goods and services in the game.

Entrepreneur.com reported in 2007 that Second Life users were actually generating fully functioning businesses that operate solely within a Linden Dollar economy on Second Life.

9. MMORPG Gold

MMORGs, or “massively multiplayer online role-playing games,” have captured the imaginations, not to mention free time, of millions of players around the world. These types of video and in-browser games involve very large numbers of players who take on characters and interact with each other in a virtual world.

World of Warcraft, or WoW, is by far the most well known and widely played MMORPG, and a major component of the WoW world is a currency, gold, that can be used to purchase in-game items. However, gold within WoW has become so valuable to players that many are willing to exchange real currency for the virtual version. Recently, 10,000 Gold could be exchanged for about $11.

By Casey Bond

© 2015 TLC Magazine Online, Inc.