What are Bitcoins? Should I Invest In, Or Accept Bitcoins?

A lot of people have been asking me recently what is a Bitcoin? or Are Bitcoins Money? Are they currency – is it like gold? Like stock?

Questions stem from Bitcoin going viral in the media recently since events including the shutdown of the black-market site Silk-Road and the US Senate Hearing on Bitcoins which helped propel the currency from $150USD to a high of over $900USD this week. (This from a starting price of around $10USD in early 2013 and worth just a few cents in 2010). After the US Department of Justice announced Bitcoins are a “legal means of exchange”, it seems the currency is solidifying its market standing, although many still question its long-term viability.

The questions surrounding Bitcoin’s legitimacy are many, as the currency is only a few years old and has had a explosive change in price since the start of this year, which looks just like another bubble.

There is a barrier for anyone to start using Bitcoin: the electronic based currency requires a digital wallet and the effort to setup and install is often outweighed by peoples concerns (plus we all have enough going on in our business and personal life just to remember a new password).

There is also lot of mystery surrounding the currency’s mechanics, including things like the mining of coins – which is the way new coins are added to the marketplace: people setup their computer, or pool computers to solve complex mathematical problems and actually ‘mine’ new bitcoin. Ironically, the process itself is often talked about by the bitcoin community as more expensive in electricity and hardware than the financial reward. There is also the very private way BitCoin started, as a cryptographic currency paper written by a yet-to-be-made public author or authors.

Irrespective of all these questions, the currency is a rock solid electronic currency, and from a security level it is as safe now as any modern currency. It is also a worldwide currency, meaning it can be transferred and used internationally without bank fees or transfer costs associated with other currencies. For this reason it recently overtook western union in daily currency volume. (Noting you still have the currency conversion if you want to cash out back to traditional money).We’ve seen easily adopter restaurants and services, charities and businesses accept bitcoins and ATMs rolling out in North America. More changes are coming as websites and POS systems start to directly accept the currency.

So it isn’t like gold in a sense you can’t carry gold around many places and buy a sandwich, you can’t withdraw gold from an ATM. While the price exceeded Apple’s share price this week (and remains above it even with the easing back after the $900USD highs) it isn’t like buying stock, there are no dividends and you don’t own shares in a company. It is just like money which can sit in the cloud or on your own electronic device. If you want to cash in or buy in, you can easily trade to and from other currencies on websites like MrGox.

Honestly I don’t see this currency as a firm investment now or in the future because like any new technology or platform, the hype surrounding it will certainly keep the value fluctuating. Gold is obviously well trusted and BitCoins have yet to stand the test of time. If you do want to invest, look into like the mining process and BitCoin cap of 21 Million coins. You’ve probably missed the boat to make your fortune on BitCoin and if you were lucky enough to buy in for cents and sell for hundreds I’m sure you’ll agree those times are behind us.

For businesses also, bitcoin has yet to prove itself vs. the interest in QR codes and isn’t anywhere near a point of replacing currency. As there is an absolute cap on the number of bitcoins to be released, it won’t scrape the surface of traditional currency value however it may be a major player in international transfers saving you on transfer percentages.

Like any technology though, especially if you have an eCommerce site BitCoins are a great buzzword at the moment and it may be worth adding a BitCoin payment gateway to your website, if for nothing else to see if you can get an easy PR win from early adopters across your current customers and beyond.

BitCoin Value 2010-2013 and a Subway Franchise accepts BitCoins.