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Bitcoin, help me understand it

What is it? 

I’ll just quote bitcoin.org:

“Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.”

It leverages a secure network to do this. 

You can verify payments – mining – and can be rewarded with more Bitcoins.  

Why is it a game changer?

  • No intermediary is necessary. You can purchase, through your digital wallet, any good/service with any seller – given that they also have Bitcoin capabilities.
  • Global inter connectivity. You can be anywhere that has connection to the internet, you can purchase/sell anything, anywhere.  
  • Cost reduction. Eliminating the middle man makes things cheaper. 
  • You control your account, i.e. no bank needed. 
  • Instantaneous. 
What are the challenges facing Bitcoin? 
  • Regulators don’t know what to do with it and while there is opportunity, bad policy could severely hamper the growth and adoption. 
  • Security:
    • Volatility. Until is widely accepted and used it will be susceptible to large price swings. It has touched over $1,000 in 2013 and has been below $200 this year. This is a result because it isn’t based or pegged to anything. The dollar used to be supported by gold, but now it backed essentially by the US Gov’t, the economy, and in turn, you and I. 
    • The Silk Road and all of its illegal goods. The advantage of being able to keep transactions private have also enabled criminals to participate in a blind marketplace.  
    • Trust. There have been several hackings where inv

      estors holding Bitcoin was simply lost. No recovery, just millions of real dollars spent a digital currency is gone. 

Should I get some? 
I have no idea. While it’s been around for awhile and hasn’t caught on yet. That could change with time (there has been a significant amount of growth just in the last few years). There is a lot of venture capital and businesses springing up around the currency. And people have been purchasing large amounts of it and are making large bets. Large banks, institutions, and government agencies are looking at. At the end of the day this could be a unique way to diversify a portfolio.  

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