Experts agree virtual currency is here to stay, but some confusion lingers
COLUMBIA - Are you confused by the concept of crypto-currencies? Does Bitcoin baffle you? KOMU's Angie Bailey tries to answer some of the big questions.
First, what is it?
Bitcoin is one of the more popular of many, many types of crypto-currency, which
is virtual money that travels the world by computer without restrictions or conversion.
There's no regulated bank or government backing it. You can't hold crypto-currency in your hand and it's worth is based on whatever one is willing to pay.
Cyrpto-currencies became more mainstream because some big names like Paypal and Microsoft started accepting Bitcoin as a form of payment in 2014, then many more big names like Ebay, Expedia, Overstock.com and Dish Network have followed suit. That's when Wall Street started paying closer attention.
Financial advisor Jeff Kaufman at JK Financial said the traditional financial sector is planning now for how to best use crypto when it goes mainstream. There's an entirely new category of financial products being developed to eventually be an option for his investment clients called an exponential technology fund.
The blueprint for this fund includes crypto-currencies as an investment.
"It could be 1% or 2% or 5% of their portfolio," Kaufman said, but if things do continue to keep growing in the direction we're going, we need to be a part of that. We can't miss out on that."
Next question. How do you get it?
If you wanted to own some crypto-currency, you'd likely get a free account online through one of the crypto exchanges available in the United States. The biggest exchange is Coinbase, but Gocoin and Bitpay are also popular.
Each only offers some of the most popular types of currency and you pay via a connected traditional bank account or debit card.
If you buy some virtual money, be prepared, prices are very, very unstable. That means in a given day, week or month, the value can go up or down dramatically.
Bitcoin, for example, has gained a massive amount of value in the last year and then lost a huge chunk of that even more quickly in less than a month's time.
Despite the whiplash, comparing February 2017 to February 2018 numbers, Bitcoin is still up more than 700 percent.
Finally, how does crypto-currency actually work?
It doesn't matter if you're talking about Bitcoin or any of the several hundred other virtual currencies available, all crypto-currencies uses what's called a Blockchain to make sure the math of buying and getting paid checks out.
A Blockchain is very complicated computer program and it's been around almost 30 years. Things like digital contracts, electronic notaries or e-filing our taxes are all possible because of Blockchains.
With virtual money, the Blockchain is a massive, ever-growing, digital ledger of all of the transactions ever made for a particular crypto-currency and in what order those transactions happened.
If you pay your rent with Bitcoin, the Bitcoin blockchain makes sure you have enough coin in your account and then deposits it in your landlord's account.
Each digital transaction is encrypted with a one-time digital signature and works like a chipped credit card does. But crypto transactions clear in minutes instead of days and without paying any fees.
Crypro-currencies were created and designed to leave out the big banks of Wall Street and the government. Add the instability in value and the growing number of different coins being created, it's an environment ripe for a regulatory crack-down.
The Securities and Exchange Commission and the Internal Revenue Service are both trying to catch-up and scrambling to define their respective regulatory roles in relation to crypto-currency.
How to determine it's value and how to incorporate it into an owner's taxes are just the tip of the iceberg.
Regardless of if you love or hate the idea of virtual money, fear it or welcome it, experts on both sides agree a worldwide crypto-currency will some day be as common as debit cards and bank accounts are now.
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