Like HowStuffWorks on Facebook!

How Bitcoin Works

        Money | Currency

Bitcoin is Just the Beginning
Is the world ready to embrace Bitcoin’s decentralized currency model?
Is the world ready to embrace Bitcoin’s decentralized currency model?
Image courtesy of Bitcoin

The sharp peaks and valleys in bitcoin value are clear warning signs that this new crypto-currency is anything but stable. Until more people actually use these coins to buy things, as opposed to speculating in the currency itself, it's difficult to say whether bitcoins are here to stay.

At the moment, bitcoins fluctuate so much in value that the coins themselves are the primary draw. Stock gamblers and speculators play games to push bitcoin value to stratospheric heights so that they can sell and make profit.

Entrepreneurial nerds assemble staggeringly powerful stacks of computers dedicated solely to mining bitcoins, competing against other like-minded miners. In the process, they burn so much cash on PC components and electricity that they don't make as much as they'd like in actual coinage. And as a side note, their energy consumption draws the ire of some environmentalists, who say that miners suck enough electricity to power 31,000 U.S. homes per day [source: Brown].

There are also plenty of unanswered questions about the nature of virtual currency itself. Is the world truly ready to switch from centuries-old paper and metal, government-backed money to a purely online version? Only time will tell.

If people really are ready for digital-only currency, is Bitcoin the answer? There are plenty of competitors to Bitcoin prepared to swoop in and cash in on the digital money market share. They include PPcoin, Litecoin, Ripple, Freicoin and Namecoin, among others. Each of these systems claims to have strengths that other currencies can't match.

Whether it's bitcoins, dollars or francs, our global economy requires all of us to trust a system of currency that makes sense. Perhaps in the coming years, a digital currency will garner enough trust that it begins to overtake more traditional currencies. Until then, however, the bitcoin phenomenon may fade, bit by bit, into the Internet ether.