Confounded by Bitcoin? Join the Club

December 17th, 2013 | by Morris Beschloss | Comments

As if the concept of “virtual currency” wasn’t confusing and inexplicable enough, in comes Sir Richard Branson, founder and CEO of Virgin Galactic, that is planning a commercial spaceship which will accept “Bitcoins” as payment for a plush seat on a future ride into the ether surrounding the earth and beyond.

The publicity emanating from this statement has not only brought this virtual currency into the public eye, but is further perplexing growing interest in other less known substitutes, such as Litecoin, Peercoin, Namecoin and BBQcoin. In order to simplify this crypto-currency as best I can, here goes:

Bitcoin, launched in 2009, has fetched in excess of $1000 recently, making all the existing Bitcoin worth about $12 billion, according to Coindec.com, which averages Bitcoin prices across exchanges. It’s gotten attention from Capitol Hill regulators,
whose agencies admitted to its legitimacy, but expressed worries that it could be used for illegal activities.

Bitcoin was invented by an unidentified group of persons called by the euphemism Satoshi Nakamoto. A finite number of Bitcoin can be created by using computers to find solutions to complex math problems. The Bitcoin can then be traded digitally. Investors also buy and sell the coins via online exchanges, and before Branson’s stunning announcement, a growing number of isolated merchants accepted this virtual currency as payment for goods and services.

The “offspring” coins generally use the same basis principles as Bitcoins, but have slightly different rules that can speed up transactions or change the frequency and difficulty with which the coins are awarded. Because none of the few upstarts are as widely accepted or used as Bitcoins, investors place only a fraction of Bitcoin value on them.

A pool of day traders also has popped up, trying to take advantage of rate discrepancies on different exchanges to make money. Many of these offspring probably won’t succeed. But at this point in time, the totality of $12 billion is likely to double by early 2014. It looks like it’s here to stay— with enough solid merchants already accepting it at the current face value that it is worth at the time it is being offered.

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