BitCoin 101

BitCoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by lots of people running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as cryptocurrency.

What can bitcoins be used to buy? Increasingly, a lot of things, from electronics and store gift cards to hotel rooms. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.

However one of bitcoin’s most interesting characteristic and something that makes it different than conventional money, is that it is decentralized. No single institution or country controls the bitcoin network. This puts some people at ease and make others quite nervous.

In addition, Bitcoin transactions are anonymous. Once you have a bitcoin, no one can find where you got it from one who gave it to. This is also both comforting and nerve-racking at the same time.

The above does not mean that Bitcoins are not regulated. Indeed, especially in the United States, there is a strong, if somewhat slow, trend toward both federal and state regulations. Led by New York, more and more states are creating bitcoin regulations modeled against the financial regulations of other currencies or commodities. Coinbase, one of the largest bitcoin companies, is currently regulated as a “bitcoin exchange” in 24 states.

One thing is for sure is that, as of 12/31/2014, there are over $4 billions in Bitcoins currently in circulation and over 82,000 merchants accepting bitcoins, including Microsoft, Dell, Intuit, and many more old world companies, and with growing regulation, especially in the United States, bitcoins are growing in legitimacy and its value proposition makes it unlikely that their growth will stop anytime soon.

Ben Bernanke, Chairman of the Federal Reserve, USA, commented “[Virtual currencies] may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”

For more answers to common questions about Bitcoins, see our FAQ.