What Is a Bitcoin Exchange, and Why Do Bitcoins Matter?

Bitcoin is one of the hottest innovations in currency today. Despite its notability, however, the currency hasn’t taken off outside of the tech space. Even without much attention, though, a new Bitcoin exchange — itBit — has raised $3.25 million to help get started, according to an article from TechCrunch. Although it sounds a bit abstract, Bitcoin can be summed up as being analogous to cash in digital form. But Bitcoin has a few unique characteristics, and much of its popularity can be attributed to the currency’s being completely anonymous.

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A Brief Overview of Bitcoin

The history of Bitcoin is fairly complex and can at times be difficult to grasp. Bitcoin has no central authority to determine the value of the currency. In fact, anyone can generate Bitcoins simply by downloading a program and generating the coins themselves. Of course, you won’t become a millionaire overnight by generating Bitcoins. The currency is generated by having computers solve complex math problems before an account is credited.

This approach is to prevent the Bitcoin exchange from becoming saturated with worthless coins. You might think building a supercomputer would help you get Bitcoins much faster; however, one of the biggest safeguards in Bitcoin is that the more powerful a computer is, the more difficult the problems it has to solve become. This ensures that everyone is generating coin at a steady pace.

How Does it Apply To You?

Due to the fact so few merchants accept Bitcoin, you probably won’t want to replace your current currency in the near future. Rather, you might want to keep an eye on the major Bitcoin exchange sites, because that is where the action is. Similar to foreign currency trading, Bitcoin is a very volatile currency. If you treat it like an investment, you can potentially make significant sums of money. An article from Businessweek discusses how three individuals bought significant amounts of Bitcoin early on for as little as $0.20 each; in April of 2013, Bitcoins traded at around $258 a piece.

While these results are unique and any type of investment involves significant risks, it may be a good idea to keep an eye on developments in this space, because Bitcoin adoption will likely increase greatly in the near future.