Bitcoin has been considered revolutionary in one way or another. Bitcoin, introduced by someone who used the alias Satoshi Nakamoto, is not really an official currency per se, although when it was launched in 2009, it was aimed to be the currency of anyone who wishes to transact online. There’s no middleman involved in transacting with bitcoins, so literally, there’s no bank or any regulatory agency.
No transaction fees, too, and anyone who wants to use this to buy goods does not have to reveal his identity. Since it was introduced in the market as a crytocurrency, there were merchants who have already accepted using the bitcoin. In fact, one can now get webhosting services, buy pizza or even get manicures with bitcoins! A digital wallet is your virtual wallet. This is where you literally store bitcoins although they don’t exist physically but via cloud service. It’s the online world’s equivalent to the traditional bank account. This is what you use to buy, send or receive bitcoins. Any transaction that you do with your bitcoin passes through your virtual wallet. However, this is not insured by the FDIC.
Despite all the buzz surrounding bitcoin and even if there has been a sudden rise of bitcoins in circulation (from around 3 million in 2010 to almost 12 million this year), still majority of the populace are not yet keen to adopting this “cryptocurrency.” Forbes John Wasik explains why. First, bitcoin is not backed by anything. Compared to the traditional currencies, there are no tangible assets to support bitcoins.
And because they are not issued by a government, circulation is not regulated, which places the bitcoin at a rather volatile situation. In fact, “the concept behind the currency is difficult to understand even for sophisticated financial experts,” explains Andrea Seidt NASAA President and State Commissioner in Ohio. In short, investing in bitcoins presents risks that could prove unbearable for an inexperienced investor.
Likewise, since bitcoins are neither government-issued nor regulated and because no authority is there to check on how much is circulating, bitcoin holders are at risk of massive inflation, explains Wasik. Bitcoins are also not insured. Who’s policing the circulation and who dictates how much it’s worth? Are there any board of governors? While there may be indeed a team of individuals who does this, the process involved is a little bit shady. Then, there’s no deposit insurance so if the entity holding the currency gets into trouble, you might as well expect to see your holding go with the wind.
Because bitcoins are virtually-traded, there’s also this fear that anytime now, these online currencies could be hacked. It’s true that paper money can be faked, but it’s way easier for counterfeiters to find business this way than in getting away with the Treasury.