Your first question is probably: what are Bitcoins? Bitcoins are not coinage or paper money in the traditional sense but rather virtual currency. As virtual currency, Bitcoins have no physical presence but are traded via cryptographically public keys that are protected by the Bitcoin ‘market’ that tracks this currency when it is traded between individuals. Your next question should be: does this virtual currency have any real value? That answer can be highly debated.
Given that, one should question how anyone can accept any type of virtual currency and place a monetary value to it. I know that I find this concept confusing as well. I was especially confused when Symantec reported a new malware this week that was allegedly responsible for the theft of 25,000 Bitcoins at a value of $500,000. How the value of $500,000 is associated with this currency is highly debated and mystifies those of us who are not trading in Bitcoins.
To better understand this type of currency, I took a look at one Bitcoin forum and learned, at least in theory, how the value of Bitcoins is determined. For me, it was interesting to learn that the value of a Bitcoin is not determined until an exchange is made. In other words, if I believe that one Bitcoin is worth $5, and you agree to honor that rate, then one Bitcoin is, in fact, worth $5 between the persons making the exchange. In my opinion, that means that if I have one Bitcoin and I can convince someone that my one Bitcoin is worth $5,000,000, and they agree, I just scammed that person.
Therefore, since the price of a Bitcoin is based on a supposed formula that is not tied to any financial or banking institutions, the value of Bitcoins is purely subjective. If this is the case, and no one is manipulating the value, how can one equate 25,000 Bitcoins to equal $500,000? Having said that, I am sure someone, somewhere is having a field day raking in the cash from unsuspecting individuals. Other issues such as the ability to use this type of currency to launder drug money has come up in Congress where the issue is being debated.
For my part, I seriously doubt that I will be investing my time or hard earned money into Bitcoins.