Digital currency system used in online transactions
The first bitcoin ATM in the world opened in a Vancouver coffee shop on Howe St. on Oct. 30, and the operators plan to open four more throughout Canada over the next few months.
“What is a bitcoin,” you ask? Good question. Bitcoin is a digital currency, developed for the Internet. Consider this: Canada uses the Canadian dollar, France the euro and China the yuan. Now the Internet has a currency just for online transactions. Wired magazine described bitcoin as “a monetary system built entirely on mathematics, brought into being by a mysterious coder (or group of coders) going by the name Satoshi Nakamoto.”
The virtual currency allows users to purchase goods and services anonymously over the Internet without using a regular bank or PayPal as the middleman. You can avoid having to enter all your credit card information into a website or paying transaction fees. It allows users to avoid dealing with the regular banking system.
The website Bitcoin.org outlines how this works and breaks the information into four steps: inform yourself, choose your wallet, get bitcoins, and spend. This writer couldn’t get past step one – inform yourself.
Security is the first thing you need to pay attention to. Protecting your digital wallet (the app for storing your bitcoins either on a laptop or smartphone) is foremost. Also, it is important to remember that the price of a bitcoin is as volatile as a stock. For example, in April 2013, speculation caused the price of Bitcoin to rise to $266 from $140 over four days, just to drop back down to $70 overnight. Those familiar with the stock market will understand this ebb and flow. Bitcoin recommends not storing any “money” you are not prepared to lose.
Bitcoin is not completely anonymous, and payments are irreversible. Although bitcoin payments are stored publically and permanently on the Internet, the identity of the user behind the address (aka a unique URL) is unknown until the transaction is complete. It is recommended you only use an address once. Addresses can be assigned for free to any bitcoin user. Due to the fluctuation in the value of a bitcoin, it is recommended a user link their account to an account that has regular currency.
Enter the ATM in Vancouver. The machines, owned by a Canadian company called Bitcoiniacs, will exchange bitcoins for Canadian dollars via Canada’s VirtEx exchange. The transactions made at the ATM will be anonymous, but clients will have to identify themselves via a palm scanner. However, bitcoin is not an official currency, and can be most-effectively classified as an asset susceptible to being taxed.
Another problem with bitcoin is that none of the goods and services available for purchase with bitcoins are well-known businesses. If Amazon or SportChek took bitcoins, the system might gain more momentum. Bitcoin also seems like a great place to launder money or sell illegal items. Recently, the FBI busted a drug ring on a site called Silk Road; the group allegedly facilitated $1.2 billion worth of drug transactions, and made more than $80 million in commissions in just over two years through the use of bitcoins.
The biggest red flag is to quote directly from the website, “bitcoin is an experimental new currency that is in active development. Although it becomes less experimental as usage grows, you should keep in mind that bitcoin is a new invention that is exploring ideas that have never been attempted before. As such, its future cannot be predicted by anyone.”