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The bitcoin seems to have taken national headlines by storm, especially given it’s two-fold controversial nature: first, because it seems to be a rather successful currency that has no central banking system; and second, because of its iconic use as a method of payment for illegal transactions.

However, bitcoin does have its uses, especially for folks who simply want to instantly transfer some form of currency from person to person without having to pay middleman fees. Though it may not be recommended for use as a hedge against inflation or as an investment at this point, because the bitcoin exchange value is very volatile.

Here is a quick guide to the BTC.

Guest post by  FXTM

Where In the World Did the BTC Come From?

The concept of the bitcoin was originally created by Satoshi Nakamoto around 2009, and has seen rather unusual popularity since then. Basically, the bitcoin is known as a crypto-currency. This form of currency is referred to as ‘peer-to-peer’, because it is transferred directly from account to account without ever being overseen by a bank or having passed through a middleman.

Essentially, bitcoins aren’t created at will, and they aren’t regulated by a central bank, which means that they can’t be devalued. All bitcoins are currently in existence; however, in order to access them, they must be ‘mined’. To mine a bitcoin, a computer must solve a math problem in order for it to be released. Over time, the math problems will become more and more difficult, and eventually, all bitcoins will be mined.

How Does a Transaction Work?

A bitcoin transaction is actually rather simple. All one must do is initiate a transfer from one ‘bitcoin wallet’ to another. A bitcoin wallet is essentially the account in which the bitcoins sit until they are transferred to another wallet.

A bitcoin wallet is made up of a random series of letters and numbers, which can be encrypted to improve security. Since bitcoins have become famous for being stolen, this is certainly recommended.

Are Bitcoins Private?

In a way, yes -bitcoins are private. No one knows who owns a person’s wallet, especially if that information is kept anonymous. However, the other answer is that, no, bitcoins are actually quite transparent.

The issue is that bitcoins are tracked by what is called, the blockchain. This is basically a public ledger, showing all transactions; and, tracking bitcoins inside the blockchain can be done from anywhere in the world.

Are Bitcoins a Smart Investment?

That depends on the investor. If someone is well acquainted with the world of the BTC, and the investor knows exactly what would signal a dive or jump in prices, then yes. In a way, Bitcoins can be traded like any other currency, but traders must remember that moves are much more volatile and the market is illiquid. For investors, it would not be a smart call to rollover the 401k into bitcoin.

Overall, the bitcoin is certainly an interesting economic anomaly, and it may be fun to own a few. The only problem is that the BTC is still far too volatile to take seriously as a real currency or investment”¦ at least at this point around the end of 2013.

Further reading:  6 Steps to creating a robust forex system