Bitcoin is disrupting:
- Reliance upon central banks
- Capital control enforcement
- Government monetary policy
- Taxation of income
Designed by ‘Satoshi Nakamoto,’ an obvious pseudonym, at the beginning of 2009, Bitcoin is a virtual currency run outside the of any bank, corporate entity, or country jurisdiction. It is not considered currency – and is outside the governance of any regulatory body.
Bitcoin is a distributed electronic cash protocol and a unit of currency. Bitcoin uses cryptographic technologies and a network of computing power to enable users to make and verify irreversible, instant online Bitcoin payments, without an obligation to trust and use centralized banking institutions and authorities. – Wikipedia.
Is Bitcoin money?
Bitcoin is not a traditional fiat currency. However, it does share characteristics in that it is liquid and traded daily, it is accepted as payment at various places – It is fungible, and divisible, it can be divided up to 8 decimal places (0.00000001 BTC).
It has all the characteristics needed as a currency, yet it is completely virtual. An interesting distinction about Bitcoin is that it essentially runs itself at this point.
As a special note: Classification of Bitcoin as a non-fiat currency or as a commodity vary from country to country and even between different agencies within the same government. Taxation and regulation vary wildly as well.
Does anyone actually use this stuff?
How are Bitcoin produced?
Bitcoin is “mined” and backed via computing power, which is a radical shift from currency centrally created by governments. Which is to say that a person or entity that has directed a computer to handle bitcoin transactions is compensated by a bitcoin drip. You could hypothetically turn your computer into a node on the network and mine coins, however, your personal pc would be slow, ineffective and not powerful enough to make a difference. People who make money mining bitcoin have powerful clusters of specially built hardware.
How are Bitcoin transferred?
Prior to the invention of Bitcoin, electronic commerce systems could not securely operate without relying on a central authority to prevent double-spending. Nakamoto sidestepped this requirement for Bitcoin by employing a proof-of-work approach in a peer-to-peer network to reach consensus in a network of computing power that validates the transactions. Bitcoin are directly backed by the continued actions of the computing power within the Bitcoin network. – Wikipedia
Bitcoin transfers a store of value in a method that ensures instant, almost anonymous delivery. Imagine the possibilities…
http://www.satoshidice.com/ – This site is very popular and one of the very first to do bitcoin only gaming. The big appeal seems to be the transparency – as well as the potential for giant payoff. Looks to be just a fair algorithm with posted results.
http://betcoin.ag/ – A modern take on the standard professional online casino that functions with bitcoin.
For a more comprehensive list, you can check out the Bitcoin Gambling Guide.
If you are an internet entrepreneur who is potentially considering a bitcoin casino, first read Asset protection for the internet entrepreneur. Draw up strong terms and incorporate somewhere smart. One of the aforementioned casinos is “incorporated under the laws of Panama and are fully licensed and regulated by the laws of that country for the purpose of operating a virtual casino on the internet” – Also, if you are running a BTC Casino – you might not want to service America, as gambling is illegal there – but only on the internet.
The Bitcoin Black Market
Bitcoin owes a good amount of its popularity to Silk Road – and underground network operating on Tor that allowed users to anonymously exchange bitcoin for drugs and other black or grey market products. Since the arrest of the operators of the original Silk Road, many other versions have popped up.
Bitcoin is the epitome of anarchy. A currency that no longer depends on government or banking institutions, bitcoin cannot be turned off. Although it is dependent upon servers to exist – it essentially cannot be destroyed – and there is a strict upper limit of 21 million bitcoin. Once turned on, the currency is destined to run in perpetuity.
My Take on Bitcoin
I like the idea of Bitcoin. It’s a disruptive technology that has the potential to add value to the world. However, at this stage, it simply doesn’t have mainstream applicability. What concerns me is the size. The monetary base of the Bitcoin network stands at only about 4 billion USD. A minimal sum in the grand scheme of the financial system.
The good is that its potentially anonymous, undetectable in cross border transactions – and the premise of it being undiluted and immune to inflation is solid. It is liquid (day-to-day trading) in major currencies, but can be very illiquid in smaller currency markets. It is still volatile, and it’s not clear if it will evolve into accepted payment or fade off as a fad.
At this point, it makes sense to have at least a small position in the crypto-currency.