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The Big Deal About Bitcoin

Bitcoin gets a lot of hype. There’s fascination with the first digital currency to gain traction in the financial world and a bit of a dark side panache about the development. It’s the preferred payment system for cybersecurity ransom demands. A few years ago it was getting high usage from illegal drug peddlers and other miscreants. There was also a highly-publicized hack of one of the major exchanges, Mt. Gox.

Now Bitcoin is gaining more attention not only because it’s an electronic means for making payments but because of its inner workings and a unique quality that promises to shift the world of money transfers.

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Bitcoin is a decentralized payment system. Two individuals or entities can transfer value without the need for a centralized overseer. In other words, it’s electronic cash held in an electronic wallet. Decentralization is attractive for a lot of reasons but it’s the currency’s reliability and security that stands out. You can rely on a Bitcoin transaction being genuine. That’s because its “block chain” is hardened against tampering or revision.

Remember that term. Blockchain (as it’s most often cited) will be one of the buzzwords of the financial field over the next five years as reputable organizations adopt alternatives to the “rails” of the ACH, card systems, and alternatives. This is not a short journey. It won’t even be free of bumps along the way but it’s another disruptive new entry. And it’s worth watching to see if it could give way to something even more powerful that maintains all the advantages of its predecessor. Just look at the millions of dollars of venture capital that is flowing into the Bitcoin-related businesses.

Even if Bitcoin itself doesn’t have a long run I believe that the blockchain will. The ability to transfer funds at the speed of e-mail between individuals located anywhere in the world without conversion fees or international currency wars at very low cost is a game-changer. I believe we’ll see the blockchain being used earliest for international transfers but long term for secure tracking of everything from legal services to land titles.