Understanding The Newest Of Currencies - Bitcoins

30/09/2013 11:10

Created in 2009, Bitcoin trading has in recent years gained considerable popularity to reach many internet users around the world. The service itself – Bitcoin, was established by an anonymous cryptographer whose main idea was that anything, including intangible bits of code, has value as long as a number of people treat it as valuable. They are not pegged by any traditional currencies but only exist as digital representations. Users 'mine' the new bitcoins and use them to solve computer algorithms so as to discover virtual coins. The businesses that take part in bitcoin trading trade them anonymously over the internet. Financial institutions do not in any way take part in the trading. As of 2012, Mt. Gox – the main Bitcoin exchange reflected that drug sale including other black-market items accounted for approximately 20% of exchanges from bitcoins to $ (U.S dollars). Some of the users argue that the currency has its cons. In that, it can be used by people to evade tax. But under the federal law, no cash should exchange hands for a transaction to occur. Barter trade and other forms of non-cash exchanges are fully taxable. This is why any transaction involving Bitcoins should be treated differently. Away from the criminal aspect of Bitcoins, the main devotees of this process are speculators who never intend to use bitcoins to buy anything. These are the investors who are convinced that the low Bitcoin supply will enable their value to increase. Bitcoin trading has so far experienced significant spikes in terms of value. But like any other service, it has also experienced major setbacks. This includes a remarkable 80% decline over a day which was in April 2012, from a high $266 down to about $90. While it appears to be digitally evoked, Bitcoin trading involves the newest of currencies that has a lot in common with the oldest of currencies - Gold. Particularly one of Bitcoin’ s popular vocabulary, the term ’mining’ clearly highlights this relation. The process mainly involves extraction of conventional resources. Like Bitcoin, Gold is simply an investment with little fundamental value. It does not generate any interest but since its supply is limited, people see it as a stable fortune compared to money that can only be printed at will. The tricky part being that unlike Bitcoin, gold coins are rarely used and most of them sitting in central banks and other established financial institutions. As a result we have experienced decline in this precious stone’s value showing that gold is slowly loosing its shine due to the little connection it has to the real economy. Making efforts to introduce Bitcoin to the main market, its promoters have significantly increased regulation including customer verification measures. These changes were made so as to respond to a directive from the Financial Crimes Enforcement Network. There are plans to start an ETF, exchange-traded fund for Bitcoin. This would make the service readily and widely available to the investors that lack technological know-how of purchasing bitcoins directly. To add on this, ETF would also bring a very different approach on the level of accountability.