Bitcoin - A Short Term Gamble

Bitcoin is a digital currency created by programmers in 2009 which is based on an open-source, peer-to-peer Internet protocol without any centralized control over it. This cryptographically-sophisticated virtual currency can be used to buy real things over peer-to-peer networks (websites allowing it as a mode of transaction) without leaving a trace in the real world - the acceptance of which is growing.

While little is known about the creators of bitcoin, it proposes to replace the existing financial system which is controlled by Centralized banks - whom as we all know manipulates money value by printing more notes since President Nixon abrogated the Bretton Woods gold standard in August 1971. Even if the centralized banks don't take your money outright as done recently in the Cyprus Bank fiasco, they have a tendency of leeching away the value of those stored funds over time, via inflation. It is this disappointment in the old system which is the biggest driver for the new bitcoin system. The idea therefore, is to create money that central banks can't debase and governments can't tax or freeze.

Bitcoin is a virtual currency in which new coins are created by a slow, complex computer process known as “mining.” There are 11 million Bitcoins now in existence, and once 22 million have been created, all mining will effectively cease. To know more about how are bitcoins created, please click here. 

The database of all Bitcoin transactions ever completed is shared by all of the participants of the Bitcoin network. A group of people known as "Bitcoin miners" continuously audit the transactions and bundle them into "blocks" that are protected by cryptography so that Bitcoin transactions can't be reversed, and coins can't be spent twice on the network. There's no central authority, but there's a central specification that anyone that wants to participate in the Bitcoin network Must follow. In order for any specification to change, almost all Bitcoin miners must agree to it and implement the change.

Bitcoin at the moment is extremely resistant to government regulation as the US Govt has acknowledged virtual currencies and (so far) simply wants businesses that convert Bitcoin to USD and back to implement money laundering controls just like any other business that converts currencies. As the technology matures and becomes more widely known, more and more people will want to profit from its fast gains as the hype about it is very real. 

But how long will it last is a the real question? 

As the transactions are encrypted the government regulations can be changed once it stats to pose a major threat to the central banks. The biggest threat to bitcoin system is that it can be implicated in promoting legally dubious activities and can be shut down. Completely closing down Bitcoin would be a challenge, but determined federal regulators could at least push it underground. That would greatly diminish its value for legitimate commerce. There are also doubts that even central banks can purchase huge amounts of bitcoins and then sell them all at once to debase its prices and its sentiments. If the market loses confidence in the value of Bitcoin its real value goes down significantly fast plus there are no caps on losses by stopping trade.

I am optimist and also want a system away from the centralized banks but Bitcoin is a fairly new currency, and if you plan on using it as a long-term store of value, it should be considered (at this time) a high risk investment as compared to good old, all natural GOLD.

If you have any additional knowledge about the subject or feel that the above provided information is incorrect, please do leave your comments