What is a “bitcoin?” This question seems to be coming up a lot these days. A bitcoin is likely the most recognized and popular form of cryptocurrency. Cryptocurrency is a type of digital or virtual currency (like the dollar or euro). However, unlike those traditional forms of currency, cryptocurrency is not backed by precious metal or the full faith and credit of a nation. Cryptocurrency is not issued by a central authority or government. Virtual currency is not insured by the FDIC.
Cryptocurrency transactions are regulated by a public ledger. Each transaction between persons has a unique mathematical signature. Cryptocurrency uses cryptography as security to verify the transaction. Each transaction is coded and that code is verified by the other users on the cryptocurrency network using the power of a personal computer to solve various mathematical puzzles. In that respect, the system is decentralized in that any person can verify the ledger and transactions occurring on the ledger utilizing the computing power of a personal computer. Additionally, coins are created when computers are tasked to solve and decode the mathematical puzzles verifying other transactions.
Currently, the United States treats bitcoin, and other cryptocurrency coins, as property for tax purposes. Purchasing, selling or transferring bitcoin, or other cryptocurrency coins, is not illegal. However, the anonymous nature of bitcoin transactions has facilitated its use on the dark web or dark market webs. The dark web is similar to a black market where a number of illegal items and services can be purchased. Sellers and buyers utilize cryptocurrency to maintain anonymity. One such darknet market, the Silk Road, was shut down in 2013.
Bitcoin has recently made headlines for being valued at $18,000 per coin before dropping to approximately $10,000 per coin (as of the date of this article). Additionally, multiple brokerages now permit options trading on bitcoin. More businesses are accepting bitcoin as payment for goods and services, despite the volatile nature of its fluctuating value.