Why Bitcoins are so popular

On June 19, 2013, in Future of Money, by Deyan Dimitrov

why bitcoins are so popularThe popularity of the Bitcoins is rising. They are becoming one of the hottest new trends in the Silicon Valley, at the same time there are even some investment banks and venture capital firms, who want to enter in the Bitcoin industry. What are they and why there are so many debates around them?

Bitcoins are completely new type of currency. Unlike the dollar, the euro or the yen however they are not backed by any government. Think of it like the play money you get in the online games, but one that actually can be exchanged to buy real stuff – from Heroin to hosting space at WordPress. They can be bought and sold as well as kept in online bank accounts. Currently there is a circulation of almost 700 million dollars worth of bitcoins (but this value may change due to the rapidly changing exchange rates of the Bitcoins.). The fact that they are not controlled by any government makes bitcoins vey similar to gold, but there is one main difference, they are intangible, completely decentralized and use clever algorithms to organize the flow of the money.

The reasons the people get so excited about bitcoins are numerous, but the most important include the following.

1. Some people believe (mostly libertarians) that the US Government is recklessly printing money which may reduce the value of the dollar in the future.

2. Transfer of US dollar is tracked and it is hard to buy illegal stuff with it. However, with bitcoins things are completely opaque and no one can associate the transactions to real persons. This gets a good chunk of underworld excited.

3. Online money transfers require the participation of an intermediary (such as PayPal), which charges transaction fees. With bitcoins there is no intermediary.

4. Bitcoins allow for easy money transfers across the whole world. You do not need to convert between different currencies. It is just as if there is one world currency.

Bitcoins, however have some significant disadvantages as well. In the real world when the economy grows the money supply grows as well. The supply of bitcoins, however is almost limited by design. This may create some serious problems and volatile exchange rate with the US dollar.

In addition to that Bitcoins are extensively used in some illegal activities such as money laundering; this has already prompted an intervention of the US Government. Last but not least the digital wallets (Equivalent of online banking accounts) are hackable and once someone takes money from you, you can no longer get it back. In case of online banking, the banks ensure a certain level of control and most cases you can get back your money if you account is hacked.

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