Two Bits on Bitcoins *Updated*

hands holding up bitcoin facsimiles

The buzz about bitcoins may subside, as bubbles are certain to burst. But the new virtual currency may prove to be more like a balloon—able to expand and deflate. What’s a bitcoin, anyway? And why is Homeland Security so concerned?

Bitcoin is a “crypto” currency that (1) exists only online, (2) is not backed by any government or central banking authority, and (3) serves as a peer-to-peer electronic payment scheme. A bitcoin is essentially a string of encrypted computer code that can be transferred anonymously by a computer or smartphone without the intervention of any financial institution. Bitcoins are being used in limited Internet commerce much like a dollar or a yen. Bitcoin transactions and account balances are verified electronically in real time by servers, through a process called mining.

The value of bitcoins has fluctuated rather wildly in recent months. At its inception in 2009 a single bitcoin was worth just cents; early this year their value soared to a height of $266 apiece—before crashing, then rebounding. To work as a currency, as opposed to an investment, bitcoins need stability; and people need incentives to spend them in trade, not hoard them, which defeats the purpose as a means of exchange.

Unfortunately for the promoters of bitcoins, their chief use at present is for black-market transactions. The eBay-like website called Silk Road relies strictly on bitcoins—albeit for purchases of illegal drugs and the like. Although the recent eurozone flare-up in Cyprus may have boosted interest in bitcoins, amid fears over the confiscation of bank deposits, the cryptocurrency has now run into some trouble stateside. If it is to survive and become a “mature” currency, bitcoin will have to do so under the gaze of the US Department of Homeland Security. On May 15, the DHS seized some financial assets belonging to Mt. Gox, the largest bitcoin exchange. The action was part of an investigation into money laundering.

Image credit: © George Frey/Bloomberg via Getty Images

Related Links

  • Bitcoin Goes to the Moon
    Listen to this podcast to get an idea of how bitcoins took off on their meteoric rise; includes a graph showing the dramatic rise in bitcoins’ value from January to April 2013.
    (Source: NPR Planet Money, April 9, 2013)
  • 7 Things You Need to Know About Bitcoin
    Solid, thorough consumer advice on the bitcoin buzz.
    (Source: PC World, April 11, 2013)
  • Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm
    This article analyzes whether the recent success of bitcoins, driven by speculation, may be proving that the virtual currency has what it takes to be viable.
    (Source: New York Times, April 7, 2013)
  • Cryptocurrency
    Bitcoins aren’t easy to understand, but this article provides as good an explanation of the “cryptocurrency” as you are likely to find.
    (Source: Technology Review, August 23, 2011)
  • Bitcoin
    Wikipedia’s extensive article on the topic is worth exploring (though entries on such evolving topics are subject to change).
    (Source: Wikipedia; accessed April 30, 2013)
  • Bitcoin Exchange Mt. Gox Lands in Feds’ Crosshairs
    Read the latest on the Bitcoin rollercoaster: how the Department of Homeland Security seized assets of the cryptocurrency’s main exchange in the US.
    (Source: CNN Money, May 16, 2013)



  1. PABLO CRUZ says:


  2. gik-to-wik says:

    hola to you tooo pablo