Digital money and how can you use it

Digital money is virtual, but has real effects. How is this possible you might wonder?

Virtual currencies debuted in 2009 once Bitcoin was launched, which uses cryptography elements. More specifically, all transactions are recorded in the so-called ”blockchain”, which represents a ”chain” whose ”links” memorize all transactions that are made.

These are verified by a network of computers, which needs to solve a series of complex calculations. The computers are not found in a central location, and every user can use his own PC. This is how solving mathematical problems prevents fraud.

Bitcoin was ”invented” by the enigmatic Satoshi Nakamoto. Unhappy with the fact that central banks all over the world were lowering interest rates and were depreciating currencies in the middle of the economic crisis, Nakamoto came with the idea of inventing a currency that would not be under the control of central banks, so as those with savings in bank deposits would not be ”impoverished”.

Moreover, the amount of currency is limited, in order to preserve its value, unlike central banks throughout the world, which can start printing money anytime. Another feature of Bitcoin is that the transactions are anonymous, it is unknown between whom they are made.

Solving mathematical problems keeps the network ”alive”, as well as a history of transactions. This has another effect: it produces the respective virtual coins, as a reward for using the computer. These are ”mined”. As more and more people use Bitcoin, its value has increased.

Money ”miners”

Professional Bitcoin ”miners” thus appeared onto the stage. They bought powerful computers with state of the art graphic boards from Nvidia or AMD and used them for solving the complex calculations within the blockchain in order to generate new currencies that would remain in their property.

The identity of Satoshi Nakamoto was never determined, although many people pretended to be at the origin of Bitcoin. Others were pointed by the press, but they denied the connection. A history of the situation was compiled by Coindesk.com.

Bitcoin payments

Bitcoin transactions are made on the stockmarkets, and traders accept in the Western world to be paid in Bitcoin. According to International Business Times, in February 2015, over 100,000 companies allowed for payments in Bitcoin.

Such companies are Microsoft, Dell, Wikipedia, Twitch, Greenpeace, Expedia and PayPal.

$2,800 record

In the meantime, though, the value of Bitcoin kept increasing, as more and more people used the virtual currency.

Bitcoin recently passed the $2,800 mark, as more and more people from Japan and South Korea started investing in it due to negative or low-interest rates at bank deposits. Still, the powerful increased comes along with concerns as well: billionaire Mark Cuban wrote on Twitter that Bitcoin prices are in a speculative balloon and that it is unknown when and how much they will be corrected.

Fabulous fortune

Since Nakamoto mined the first block in the blockchain, he now has a fabulous fortune. In 2013, when Bitcoin was valued at $1,000, Nakamoto’s fortune was estimated at around $1 billion. Now, at 42,800, if we are to keep the proportion, he would have around $2,8 billion.

Even though Bitcoin is the most famous virtual currency, it is not the only one. Other currencies were created as well, and their total value exceeded $100 billion a few days ago. Out of these, 45% is represented by Bitcoin alone.

Ethereum, the new hit

Another hit currency is Ethereum, started by programmer Vitalik Buterin, a 23-year-old Canadian of Russian origins. The currency itself is not necessarily important, but the ”Blockchain” behind it.

Several companies, such as banking giant PMorgan Chase and technology groups Microsoft, Intel and over 20 other societies allied in order to develop standards that would make Ethereum more easy to be used by companies.

Among the societies within the consortium are service provider Accenture Plc, oil group BP, as well as banks Credit Suisse, Banco Santander, UBS, BBVA, ING, Bank of New York Mellon Corp and news agency Thomson Reuters Corp.

Kik Messenger also announced recently they will launch their own digital currency to use blockchain Ethereum. Ted Livingston, founder and CEO at Kik claimed that the society will sell 10% of the total amount of currency. Kik will thus be the first social app to launch its own currency.

Other companies, such as IBM and Hitachi support Hyperledger Project, a group led by Linux Foundation.

What is the initial coin offering

This operation, called initial coin offering, is becoming increasingly used by companies to obtain financing since it has no regulations. Companies thus obtain large sums of money, and the users of those coins are the first one to benefit from them as well.

Perhaps you wonder how is the virtual currency turned into real money. It all starts with what money generally means. This is a way for people to give value to something. In the past, central banks all over the world emitted as much money as gold they had in their treasury. This system was meanwhile given up. The value is now “confidence”. More specifically, the dollar is worth as much as people believe it is worth. The same thing applies to Bitcoin.

Where can virtual money buy

For those that are interested, virtual money can be bought on specialised “stockmarkets”. The largest of these is Coinbase, with it being easy to use by beginners and accepting dollars, euros or pounds. All you have to do is register, load the money on the account and start transactions. A list with over 40 stockmarkets specialised in virtual currency transaction is found on BestBitcoinExchange.io.

Watch out for the risks

There are a few things to know though, if you are planning on getting rich fast.

First of all, Bitcoin and the rest of virtual currencies fluctuate a lot. There are huge differences between transactions from one day to another. Bitcoin transactions are the same trading stocks an on the stockmarket and it is possible for it to crash at any time, and its portfolio suddenly to have zero value.

It is also recommended not to invest all of your savings in virtual currencies, precisely due to the huge risks. Pension or investment funds dissipate the risk, which means they invest in various things. Usually, the safest investments hold the lowest yields. These include bank deposits (guaranteed within the EU up to 100,000 Euros) or government securities. Investments in Bitcoin or other virtual currencies are very speculative, even more than those in shares.

Finally, one of the downsides of digital currencies is that terrorist groups, the mafia or criminal gangs can be financed with them, since they are anonymous.