Nov 23, · Not only does Square's (NYSE: SQ) investment in Bitcoin demonstrate ongoing adoption by relevant financial tech firms, but it also highlights one Author: American Institute of Economic Research. Jordan Kelley will join industry leaders at a public hearing to discuss bitcoin, before demonstrating Italy's first Robocoin ATM. Jim Cramer bought some bitcoin on Friday, Dec. Here's why. Like us on Facebook to see similar stories Please give an overall site rating.
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Hong Kong. Bitcoin Protocol. Now, if Bob is willing to accept bitcoins, which are a form of electronic payments, then Alice can go ahead and send Bob some value in bitcoins. And really, a bitcoin transaction between Alice and Bob amounts to a specially constructed sequence of numbers that Alice will basically send over to Bob. And this will be done entirely over the internet. These numbers will have certain mathematical properties.
They make it hard for someone to really defraud the system or to conduct some type of nefarious action on the system. And the way that Alice is actually going to conduct this transaction in practice is either by installing a special piece of software, which we call a bitcoin client, or she can work with a third-party service that can handle these mechanics for her. But in either case, either the client or the service is going to generate these numbers for Alice.
And on the flip side, Bob will also typically either have a piece of software installed or he'll use a third-party service that will take these numbers and allow him to do something else with those numbers. For example, Bob can in turn buy something on his own with those numbers, or he can trade those numbers in for real money and so on and so forth.
Now, one of the first questions you might have-- and I kind of alluded to this earlier-- is why would Bob even want to accept bitcoins in the first place? After all, a bitcoin is just a bunch of numbers. What intrinsic value would it conceivably have? And it turns out, quite surprisingly, that bitcoins actually have real-world value.
There are more and more merchants popping up each day who accept bitcoins for transactions. There are also bitcoin exchanges, places where you can go and exchange bitcoins for more mainstream currencies. And some of exchanges include-- the major one is one called Mt. And at Mt. Gox you could exchange a bitcoin for a euro or yen or dollar and so on and so forth. That number is fluctuating. This is a new currency, and there's going to be some fluctuation.
But as people understand the currency better, the hope is that that fluctuation will decrease. But I think ultimately, the thing to keep in mind is that the value of a bitcoin is going to be derived from the faith that you have in the value of what you can procure with that bitcoin. It's just like you would for a dollar, a euro or yen. The faith that you have in that currency's value is how you value that currency.
Now another question you might have is why do people even bother with bitcoins in the first place. Aren't there other more standard ways? Why couldn't Alice and Bob use Paypal? Why couldn't they use a credit card number to transact? Why couldn't Alice just sent Bob an electronic check? Why not use one of these other approaches that are more well understood, that are more mainstream, that are more established?
Why on earth would you possibly want to mess with a good thing? So it turns out that there are a few properties of bitcoins that are worth noting. For starters, there's privacy. It turns out that within the bitcoin ecosystem, within the bitcoin network, people can transact without divulging who they are in the real world. From the perspective of bitcoin, Alice's identity is just going to be a sequence of numbers. And that sequence of numbers is effectively going to function like a pseudonym for Alice.
In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Coinbase is a leading exchange, along with Bitstamp and Bitfinex. But security can be a concern: bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in People can send bitcoins to each other using mobile apps or their computers. This is how bitcoins are created.
Currently, a winner is rewarded with The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money.