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For the past couple of months you may have heard the word bitcoin a great deal in the news. So, what is a bitcoin? At its most basic level, it’s just a bit of computer code. Though, it has come to mean a lot more than that. The bitcoin has become a digital currency accepted by online merchants, giving it legitimacy. Here is a simple breakdown of how this digital currency started and why it may or may not have lasting value.

A Computer Code Coin

In 2008 a computer programmer named Satoshi Nakamoto came up with the concept of a digital currency that is stored in an intricate network of computers that he manages. Computer users could then mine for the coins using complex computing algorithms unlocking the a small snippet of computer code that contains a single bitcoin. Nakamoto launched his endeavor in 2009 and quickly a variety of computer users began to seek them out.

Online Merchants Gave It Value

A little bit of computer code hidden inside a complex computer network that can be hacked in order to gain access to a coin sounds like a fun little experiment, so how did this turn bitcoins into a form of currency? The fact that people wanted to possess them gave bitcoins their initial value. Whenever a group of people have a demand for a certain good or product, the good or product will contain the value. Though, this shouldn’t have been enough to make bitcoins what they are today and it wasn’t. Once online merchants began to see some value in bitcoins they started to accept them as a form of payment. That is where bitcoins began to take on real value as a form of digital currency.

Users Regulate Bitcoins

There is no central regulation of bitcoins. In fact, almost all banks and financial institutions do not recognize it as a form of currency. The only regulating of bitcoins that occurs is through the trading of it between users. This is part of the appeal of bitcoins for some, with banks and governments being unable to corrupt it by using irresponsible practices. This is also the reason that many governments and banks dislike it so much.

If bitcoins hold real value and cannot be controlled by a government, it’s possible it can hurt the actual trading of currencies that are backed by governments. Also, the anonymity of the people possessing bitcoins makes it possible for them to be used to purchase illegal goods without being able to trace who made the purchase. That is part of the reason for banks closing the accounts of bitcoin operators when they realize what the business is doing. This does not mean that bitcoins are primarily used for illegal activities. Actually, they are mostly used by honest individuals and traded through legitimate websites. Though, if you are considering getting into the bitcoin market, you need to consider all of these factors to make sure you aren’t jumping into something you don’t understand.