12 Apr 2014 / Wall St. Cheat Sheet – Maybe you dismissed digital currency after all the strange headlines. Perhaps from the start Bitcoin seemed too complex and you skimmed past the topic. But as congressmen use bitcoin ATMs on Capitol Hill, retailers like Overstock.com (NASDAQ:OSTK) begin accepting bitcoins for payment and venture capital investments in cryptocurrency soar, it’s clear digital currency isn’t fading out just yet. Here are some basic questions, answered, that can help get you up to speed.
What Exactly Is Bitcoin? Bitcoin is the name of a digital currency system that is also referred to as cryptocurrency as it relies on cryptography for creation and transfer. Bitcoin with a lower case “b” doubles as a generalized term for digital currency. Bitcoins can be obtained by purchase through an exchange or via transfer into a user’s digital wallet.
Bitcoin is the first and most well-known digital currency, created in 2009 by a person or group using the pseudonym Satoshi Nakamoto. The peer-to-peer payment system mostly flew under the radar until about six months ago. In October 2013, the FBI shut down online black market Silk Road that allowed users to anonymously purchase illegal items using bitcoins, seizing $3.6 million worth of the virtual currency in the process. Soon after came headlines that leading Bitcoin exchange, Mt. Gox, had lost $600 million but shortly after the owner “found” some of the missing funds in an old digital wallet.
If Bitcoin Doesn’t Use Banks, How Is It Permitted? Laws surrounding digital currencies vary by country, as summarized on Forbes.com. The U.S., who has a history of allowing alternate currencies as long as proper taxes are levied, is considered Bitcoin friendly. Last month, the IRS concluded that for tax purposes, digital currencies would be classified as property, similar to stocks. While not questioning their legality, Attorney General Eric Holder testified to the House Judiciary Committee this week that the Justice Department would be carefully monitoring digital currencies for signs of money laundering and other criminal behavior….. Read more
