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Bitcoins – What They Are


There have been a lot of stories in the news lately regarding bitcoins – their value diminishing, accusations of money laundering, and owners of bitcoins being unable to access their funds. But many consumers don’t know what they are or how they work. “Basically, a bitcoin is a virtual form of currency,” states Jana Castanon Spokesperson for Apprisen. “They only exist in computer accounts called wallets. A similar concept would be your online bank account, but there are no actual dollars attached to it."  

Part of the controversy regarding bitcoins is lack of regulations and consumer protection. While real dollars in US banks are insured by the FDIC, there are no protections for bitcoins. They only are worth something because someone is willing to give you currency or products in exchange for one. The moment people believe that bitcoins have reduced value, or worse, no value at all, they become worthless. At this time, there is no way to formally regulate bitcoins. Governments are actively trying to develop guidelines, but are struggling due to the anonymous identity of the users.

Spending bitcoins is as easy as transferring them from one wallet to another; again, similar to transferring money from your bank account to another account.  Your “wallet” is housed on your computer so it’s as simple as imputing the amounts and hitting send. As with anything stored on your computer, your bitcoins are subject to fraud and mishap. As we have seen recently, computer hackers have been able to compromise many retail outlets and get credit information. Precautions are in place to help prevent this, but who knows what could happen. Or, your hard drive could crash and if you don’t have it backed up you could lose everything. One early buyer of bitcoins lost more than 7 million dollars by accidently throwing the computer hard drive containing the records of his wallet into the trash. Once your bitcoins are gone, they are gone.

For most people, the concept of using bitcoins is still foreign. Just as online banking was an unstable concept for most people in its infancy; it has become mainstream for most consumers. So it will be with the bitcoin or some other form of virtual currency. “Most people are resistant to change, especially if it involves their money,” continues Castanon. However, as we grow into a more global economy and more retailers and servicers are beginning to realize virtual currency is a more efficient way to do business, public resistance will lesson over time, just like with the online bank." 

  
 
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Apprisen, a national nonprofit credit counseling agency, has been helping consumers manage their finances and get out of debt for almost 60 years.

 

 
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