Are Bitcoins Really Legal?

       There is a fairly new type of currency that is becoming more and more popular. It is called bitcoin, a type of digital money that is all stored and managed electronically. The value of one Bitcoin has increased dramatically in its short life. Currently one Bitcoin equals 381.03 USD dollars, but the value is intentionally flexible.

        It was introduced as an open-source software in 2009 by Satoshi Nakamoto. Nakamoto is a pseudonym, meaning the true identity of the creator is unknown. There is much speculation on whether the creator is one man or a group of people.

Bitcoin is a type of digital money that isn't backed up by any specific government. You purchase Bitcoins and then store them inside of your virtual wallet, and then can use these Bitcoins to purchase anything of your choosing. Bitcoins are made by a process called Bitcoin “mining.” Mining is when the computers in the network perform difficult math problems, and as the mathematics get harder it becomes more difficult to mine. This system has made a limit on how many coins can be mined, which is around 21 million.

         A major advantage to using Bitcoins is that there are lower transactions costs, which over time saves the user a significant amount of money. Another advantage is privacy it offers, because each transaction is anonymous. There are also major disadvantages of using Bitcoins. One disadvantage is the sizable volatility of the price of the Bitcoins, meaning the value of the Bitcoin can change.

The main question that keeps popping up is “is it legal?” The answer is yes, when used the right way. Law enforcement is concerned about how the currency is decentralized. They worry that Bitcoin will be a place that criminals will dabble in illicit activities with no paper trail or records of the transaction taking place. Congress is also concerned with the possibility of illegal transactions, as well as the fact that it could disturb the objectives of the Federal Reserve.

        There are many security issues associated with using Bitcoins. The wallet is susceptible to theft because it is stored unencrypted, making it an easy target for hacking. They have been connected to several thefts, scams and reported losses of wallets holding large amounts of money.  There is also no way of finding your Bitcoins if they are stolen. Because Bitcoins are not regulated by a bank and there is no way to trace an exchange, there is no way to track that Bitcoin, so it essentially disappears. So while there are many advantages to using Bitcoins, the user risks losing a lot of money with no hope of reimbursement if they are hacked.

        Although it is a new interesting way to store and manage your money, I personally think that the negatives weigh out the positives in regards to the Bitcoins. Yes, it may be cheaper to do international transactions but the security risks are way too high. Bitcoin has had major theft problems in the past and because it is a decentralized system it is quite easy for someone to hack it. I also do not think it is a good idea to have a way to buy something online and have no way of tracing who bought it. 

http://www.cnbc.com/id/101213462#.

http://www.economist.com/blogs/economist-explains/2013/04/economist-explains-how-does-bitcoin-work

http://www.fas.org/sgp/crs/misc/R43339.pdf

http://consumerist.com/2014/03/04/bitcoin-what-the-heck-is-it-and-how-does-it-work/