Bitcoin ( New Digital Currency)

Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymousdeveloper Satoshi Nakamoto. It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money. Users send payments by broadcasting digitally signed messages to the network. Participants known as miners verify andtimestamp transactions into a shared public database called the block chain, for which they are rewarded with transaction fees and newly minted bitcoins. Conventionally "Bitcoin" capitalized refers to the technology and network whereas "bitcoins" lowercase refers to the currency itself. Bitcoins can be obtained by mining or in exchange for products, services, or other currencies.

Bitcoin has been a subject of scrutiny due to ties with illicit activity. In 2013 the FBI shut down the Silk Road online black marketand seized 144,000 bitcoins worth US$28.5 million at the time. The United States, however, is currently considered to be Bitcoin friendly compared to other governments. In China, new rules restricted bitcoin exchange for local currency, and the European Banking Authority has warned that Bitcoin lacks consumer protections.Bitcoins can be stolen, and chargebacks are impossible.

Commercial use of Bitcoin, illicit or otherwise, is currently small compared to its use by speculators, which has fueled price volatility. Bitcoin as a form of payment for products and services has seen growth, however, and merchants have an incentive to accept the currency because transaction fees are lower than the 2–3% typically imposed by credit card processors.

Economics

Bitcoin's rate of inflation is predefined within the Bitcoin protocol and is decreasing as time goes on. At some point Bitcoin will become a deflationary currency as no new coins will be released. Since the rate of inflation is fixed it has been called "inflation-proof", or more specifically resistant to uncontrolled inflation.At present the exchange price of a bitcoin is extremely volatile, which has led to some questions about its ability to function as a currency,however others contend this is a necessary "growing pain" in such a new technology, and that Bitcoin needs to grow to achieve stability.

Bitcoin's eventual deflationary bias, which incentivizes hoarding and removes money from circulation, is also cited as a stumbling block to Bitcoin becoming a functional currency.

Even if Bitcoin doesn't succeed as a currency, it may continue to prove useful as a payment processing system. Volatility has little effect on its utility in this regard since money would need to be converted to bitcoins only for the short time it takes to make a payment or transfer. Processing fees are also substantially lower than those of credit cards or money transfers. Some feel that Bitcoin may be especially well suited to facilitating cheap cross-border money transfers.

Currently Bitcoin does see use as a currency and by November 2013 there were about 1,000 brick and mortar businesses willing to accept payment in bitcoins, and more than twenty thousand merchants online.

Alternative to national currencies

Bitcoins are accepted in this café in theNetherlands as of 2013

Some have suggested that Bitcoin is gaining popularity in countries with problem-plagued national currencies, as it can be used to circumvent inflation, capital controls, and international sanctions. Bitcoins are used by some Argentinians as an alternative to the official currency, which is stymied by inflation and strict capital controls. In addition, some Iranians use bitcoins to evade currency sanctions.

Financial journalists and analysts have suggested that there was a link between higher Bitcoin usage in Spain and the 2012-2013 Cypriot financial crisis.

Bubbles

Noted individuals who have named Bitcoin a bubble include Former Federal Reserve Chairman Alan Greenspan; a core developer of the Bitcoin protocol, Mike Hearn; and Economist John Quiggin.

Reuters journalist Felix Salmon correctly predicted the bursting of one such Bitcoin bubble in April 2013.

Nick Colas, a market strategist for ConvergEx Group, is among those who see Bitcoin's quick rise in price as nothing more than normal economic forces at work.

Bitcoin's Lead Developer, and Chief Scientist of the Bitcoin Foundation, Gavin Andresen has also spoken on the subject stating "I predict there will be between one and five Bitcoin bubbles"