Bitcoin is being described as cyber money, virtual currency and cryptocurrency. It is a method of using technology to speed up financial transactions and reporting. Transactions are made with no middle men – meaning, no banks – and no transaction fees! The system works without a central repository or single administrator, they are not tied to any country or subject to regulation, which has led the US government to categorize bitcoin as a decentralized virtual currency.
Bitcoins can be used to buy merchandise anonymously. Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs, assuring both privacy and the inability to trace a transaction. Unlike credit cards, any fees are paid by the purchaser, not the vendor. Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods, orsave their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC and can be hacked.
Consumer banking still looks like it did a decade ago. “There’s a big fat moat around banking,” according to former Deutsche Bank CEO Anshu Jain, “That’s kept tech at bay.”That moat, though, is being breached. It is not unlikely that within the next year or two we will find ourselves asking, “Do you want to pay with credit card, Paypal or Bitcoin?”