What is Bitcoin? Should I Use It? What You Need To Know About The Digital Currency

Bitcoin currency a bubble to burst?
Bitcoin recently saw huge growth in the market but could it be a bubble waiting to burst? (Photo: YouTube)

What is Bitcoin? Should I use it?

Ever since the Bitcoin currency exchange rate began skyrocketing this montg, it has quickly become one of the hottest topics on the web as over the last week we have seen the value of the digital currency skyrocket and fall in a manner so unpredictable many analysts are saying the effect looks like the bubble of a ponzi scheme that's just waiting to bust.

Over the last quarter the price of Bitcoin exchange rate has bounced from a low of 13 dollars per share in January to a high of 147 dollars per share. This is significant, particularly considering the value of bitcoin increased quite slowly in 2012 from 5 dollars to 13 dollars per share.

Bitcoin sees record growth but could its demise be ahead?

Just when it seemed bitcoin was truly prepared to validate itself as superior form of currency, some bumps in the road occurred which have led to a drop in the value of the currency 134 dollars per share, while still remaining quite high.

In fact, the values are so high it's one of the hottest investment options in the world right now after just 4 years online.

Many are pointing to the banking problems in Cyprus as being largely responsible for the sudden interest in the trust-free currency and may have contributed to the surge of growth. But though the online and unregulated currency may seem attractive to some, to others who have watched financial crashes come and go, they beleive the Bitcoin bubble, while growing larger and larger, will eventually like all bubbles will burst.

What is Bitcoin? Or how does Bitcoin work?

Bitcoin is a kind of digital currency used on the internet. Bitcoin is open source and can be exchanged with a computer or smartphone device and requires no financial institution as the go between but rather handled by computer servers or "bitcoin miners".

Who started Bitcoin? How did Bitcoin get started?

Bitcoin was started in 2009 by a hacker/developer going by the pen name Satoshi Nakamoto and was meant to be an answer to a seemingly corrupt monetary system based on our trust in the banks.

At a time when distrust in the Cyprus banking system was at an all time high and people were having difficulty accessing their money, suddenly this anarchic style of currency exchange seemed to make a lot of sense for people and in no time the shares and the Bitcoin exchange rate began to take off.

According to Felix Salmon at medium.com,

"Bitcoins were designed to be - and, in many ways, are - the perfect digital currency: they're frictionless, anonymous, and cryptographically astonishingly secure. For anybody who's ever suffered the incompetence of a bank, or bristled at the fees involved in just spending money, either domestically or abroad - that is to say, for all of us - the promise of bitcoin is the holy grail of payments. Especially since, to all intents and purposes, Bitcoins are invisible to law enforcement and the taxman."

Is Bitcoin safe or secure from hackers?

But with such a quick increase of interest in the online currency one, could only assume someone would seek to benefit in an underhanded way from the influx. Those individuals are mercenary hackers who are busting into wallet services like Instawallet which recently posted that it was suspending itself indefinitely to the instable security architecture currently in place.

Why hacking the Bitcoin system is particularly worrisome is that once Bitcoin anonymous transaction take place they, cannot be changed, making it impossible to report losses or theft.

Some of the reason Instawallet may have been targeted is due to a factor which made it so popular--ease of use. Instawallet is considered one of the easiest services to use, but also the least secure because it uses a "URL as password" mechanism for protection.

Though Instawallet is planning to open the claims process soon for customers who stored funds with the service there may still be problems ahead. Here is what Instalwallet's notice said about its suspension.

"The Instawallet service is suspended indefinitely until we are able to develop an alternative architecture. Our database was fraudulently accessed, due to the very nature of Instawallet it is impossible to reopen the service as-is. In the next few days we are going to open the claim process for Instawallet balance holders to claim the funds they had stored before the service interruption. Important information on claims submission: For the first 90 days we will accept claims for individual Instawallets. Your wallet's URL and key will be used to pre-populate a form to file the claim. After 90 days, if no other claim has been received for the same url, your Instawallet balance under 50 BTC will be refunded. If several claims have been filed for the same URL, we will process those claims on a case by case basis, under the presumption that the claim we received first belongs to the legitimate balance holder. Claims for wallets that hold a balance greater than 50 BTC will be processed on a case by case and best efforts basis."

Of course Instawallet isn't the only Bitcoin exchange server experiencing problems with the currency. On Wednesday, one of the largest Bitcoin exchanges, Mt. Gox, also claimed experiencing trading lags and delays in deposits.

Should I use Bitcoin?

Though many may be celebrating the birth of this new monetary system and its seeming success, Bitcoin is still yet to prove itself anything more that a financial crisis waiting to happen.

The advice many are giving on Bitcoin at this time, is, if you choose to try the new currency only purchase as much as you are willing to lose, for lose you may. After all, with a currency like Bitcoin built on lack of trust, it's hard to trust it will be anything more than a pipe dream.

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