Making purchases online is increasingly more popular in society, and even old gramps knows how to make a simple purchase for himself online. Apparently, some feel a bit cautious about putting their financial information on the Internet, which is why payments using virtual currencies unbacked by a physical commodity, such as Bitcoin, are experiencing their golden age in an outright economic crisis, and are making their way to being an alternative to international currencies.
P2P money was created with the objective of making financial exchanges without “real” economic backing as an alternative to the conventional system, thus avoiding the intervention of central banks and government agencies. Ever since Bitcoin was born in 2009, it has experienced an incredible 600% growth in value. The major advantage to this virtual currency is that you can make payments without having to enter banking credentials, a feature that might have been one of the leading causes to said growth, and that has undoubtedly made it so popular.
Bitcoins, because they don’t exist physically and aren’t directly related to the money in your bank account, provide greater security when it comes time to making a payment. How do they work? These coins have an encrypted code, and every movement is recorded publicly so as to keep, or so they say, every transaction safe.
The bitcoin code is based on cryptography – each user has two passwords: a public one; which will be known to everyone, and is used to verify signatures; and a private password, which can only be used by its owner and for signing. Let’s say, for example, that an electronic bill with the number 111111 has x-amount of value. When you use it to make a payment, the service “crosses out” that bill and adds it to the recipient’s account, thus recording every transaction and keeping that same bill from being used again.
Currently, there are 11 million bitcoins in circulation, and many companies and small businesses accept them as a method of payment for services such as phone bills and web hosting. Working with this type of virtual money is very convenient because it is international and users posses a certain anonymity. Many people can dream that the future lies in the trading of P2P coins online, which comes off as very secure, but not everything goes as planned.
Instawallet, one of the virtual wallet services that store this kind of money, was hacked, and those responsible have made the service close indefinitely, harming both the company’s credibility itself and that of the bitcoin, which has fallen from $145 to $112.
Even still, panic didn’t spread too much among users as Instawallet is accepting claims and returning all the money stored throughout the next three months so that users can get all their money back. However, those who had more than 50 bitcoins will have to wait longer because they are “special case.”
Perhaps, when the climax of this virtual money resolves all these problems, online payments will continue to grow and flourish until they have become the worldwide economic system.