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The Phenomenon of Bitcoin

Vince Bellino 15’, Financial Editor ,  Nicole Morrissey ’14 Staff Writer 

Bitcoin is a proliferating virtual currency used as a means of anonymous peer to peer transactions. It operates through a decentralized network, which implies that there is no authoritative oversight by a central bank. Therefore, bitcoin is not considered to be a fiat currency (i.e. dollar or euro) because it has not been declared to be a legal tender of exchange. One may use the currency to buy merchandise or as an investment looking for capital appreciation. It allows for easy international transferability through mobile applications and minimal associated costs because bitcoins are not held in a bank or subject to fiat currency regulations.

Bitcoins are traded on a various exchanges, like equities on the NASDAQ or NYSE. Mt. Gox was a Japanese based exchange that handled around 70% of all Bitcoin transactions on global basis. On February, 7th, 2014, the exchange filed for bankruptcy protection because they allegedly lost nearly half a billion dollars’ worth of bitcoins due to hackers. The value of the currency nearly lost 25% of its value in one day based on this prevailing news. So, would you want to own this virtual currency?

An individual’s bitcoins are stored in a “digital wallet”, which is secured in cloud storage or on one’s computer. Although “secured” in the cloud, they are not FDIC insured like our bank accounts. The anonymity of bitcoins also puts into question the potential for illegal drug trafficking and money laundering. Transactions are recorded in a public log, but the only identification is that of one’s wallet ID. So, the opaqueness of transactions may lead to continued pessimism about the ability to harness the potential for virtual currencies. Bitcoin is clearly in its developmental stages, but if the government can conduce ways to regulate and tax it, we may dispel of paper money.

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