Bitcoin is a cryptocurrency technology and an online payment system rolled into one- the technology and the payment system are inextricably tied. Unlike traditional currencies, Bitcoin operates without a central authority. This lack of a governance is responsible for the long list of pro’s and con’s and skepticism surrounding Bitcoin. Bitcoin can fulfill many of the roles of traditional currencies- you can buy and sell goods, transfer Bitcoin to your techie friend or convert it to many pre-existing currencies. A peer to peer network of users running the bitcoin software perform the processing needed to complete the transactions, create new bitcoins, and keep a public ledger or “block chain” of who owns which Bitcoin.

No need to open an account at a branch office, all you need to get started with Bitcoin is a phone with internet access. This provides greater access to “banking” in developing countries. Without institutions that regulate Bitcoin and need to make a profit, International remittances, merchant fees, and domestic transfers are free or minimal. Finally, there are no exchange rates to worry about and you’ll never hear about a merchant breach that compromised your personal information, because your personal information doesn’t exist.

Although the benefits of Bitcoin are appealing, there are large hurdles to overcome for the new currency to become adopted in the mainstream. The value of a Bitcoin has been more volatile than a traditional currency which makes it a risky choice for wealth accumulation. Second, Bitcoin is not a very liquid asset. Bitcoin is not accepted by enough merchants to garner mass appeal. Finally, there is a barrier of entry to some because of the technological complexity of using a digital currency.

Is bitcoin the currency of our future? Probably not. Bitcoin will face great challenges being accepted until there is some type of regulation. Although Bitcoin may not be around forever, it might be a stepping stone toward a brighter future with a better currency.

References

http://en.wikipedia.org/wiki/Bitcoin

https://bitcoin.org/en/faq

http://money.cnn.com/infographic/technology/what-is-bitcoin/

http://www.wsj.com/articles/do-cryptocurrencies-such-as-bitcoin-have-a-future-1425269375