In January 2014 Patrick M. Byrne, the CEO of online retailer Overstock.com, announced that his company would begin accepting Bitcoin digital currency as a form of payment for its products.
By March 2014 Overstock.com had processed over $1 million worth purchases from customers paying with bitcoin, a milestone that surprised both the company and many bitcoin users.
By embracing bitcoin, Overstock.com joined the ranks of other notable businesses, from Virgin Galactic (which is allowing customers to reserve seats on its upcoming space flights) to CVS Pharmacies and the brick-and-mortar Target department stores. These larger companies are joined by thousands of small businesses across the United States and around the world that are moving to accept bitcoin payments from their customers.
Despite the explosive growth in the use of bitcoin, many people are still unfamiliar with this new and mysterious digital currency. For the uninitiated, it might be helpful to look back over the brief history of the bitcoin phenomenon.
Simply put Bitcoin is a virtual, digital, software-based currency, or, as it has become known, “cryptocurrency.” Unlike traditional forms of currency, here is no central repository of bitcoin, and those who possess bitcoin store them in digital storage media, transferring them via peer-to-peer transactions such as when bitcoin is used to make purchases.
Bitcoin is underpinned by a sophisticated “mining” system in which users devote computer processing power to maintain and updating the open-source software and public ledger system which monitors and records bitcoin transactions.
This ledger, known as the “block chain,” contains the entire history of bitcoin transactions since the cryptocurrency was introduced in 2009. In exchange for providing these computational processes, “miners” are rewarded with the creation of new bitcoins.
Have the advantage Devotees of bitcoin point out that it has the advantage of not being tied to many of the economic conditions of traditional currencies which can lead to monetary inflation or to price fluctuations associated with currency exchanges.
Since its introduction in 2009 bitcoin has become a true global currency, and is valued by users for its relative lack of volatility and the fact that it is not tied to any traditional forms of currency. The bitcoin mining system places automatic limits on the amount of bitcoin that can be created and the rate at which new bitcoins can be mined, a system which circumvents many of the issues related to traditional currencies when too much or too little money is allowed to circulate.
Bitcoin is both anonymous and transparent, features which inspire confidence in the long-term viability and security of the digital currency. In our next article we will look more closely at the technology behind bitcoin, and examine the ways in which it is mined, how it is stored, and how it is used as compared to traditional currencies.