Virtual currencies — money that exists only in digital form and is used as an alternative to government-issued currencies — have been available since the late 1990s. But it took the launch of Bitcoin in 2009 for virtual currencies to begin to see any significant adoption.
Bitcoin, which allows people to send and receive payments online within an entirely decentralized peer-to-peer network, has become the most prominent type of virtual currency worldwide. While the Bitcoin currency network has a capital “B,” actual bitcoins have a lowercase “b.”
Other virtual currencies include Litecoin (which is technically nearly identical to Bitcoin), Dogecoin, Namecoin, Peercoin and many others. “None of these virtual currencies are anywhere near Bitcoin in terms of adoption,” said Patrick Byrne, CEO of U.S.-based online discount retailer Overstock.com.
There were 13,360,750 bitcoins in circulation on October 8, 2014, worth around $4.6 billion, according to Bitcoin publication CoinDesk.com. Bitcoin’s value fluctuates daily. A whole bitcoin was worth $343 on CoinDesk’s USD Bitcoin Price Index (BPI) on October 8, 2014.
CoinDesk estimates that the number of Bitcoin wallets worldwide rose from 765,039 in June 2013 to 5.4 million in June 2014 and to 6.6 million in September 2014. Bitcoin was accepted by 76,000 merchants, the vast majority being online businesses, in September 2014, up from 63,000 worldwide in June 2014.
Tier 1 merchants such as Dell, Expedia, Overstock.com, TigerDirect and Virgin Atlantic accept Bitcoin, which is helping drive consumer awareness of virtual currencies. “A small but growing segment of consumers want to pay with Bitcoin,” Byrne said. “The number of Bitcoin users is growing at 30 percent a month, and the number of Bitcoin wallets is growing eightfold year-on-year.”
Bitcoin was developed to eliminate the middleman when two parties exchange payment for goods and services. That means no banks or third-party networks such as MasterCard or Visa are involved in the Bitcoin payment process.
According to the Mercator Advisory Group report “Bitcoin Basics, Trends, Regulations, and Usage,” the main attraction of Bitcoin always has been that it isn’t an institution, an organization or any sort of centralized entity.
“Since there’s no central authority, Bitcoin has thrived due to its transparent and hassle-free nature for both buyers and sellers,” the report said. “While the governments of the U.S., U.K. or the European Union are not likely to shut down Bitcoin, rules and regulations will likely be imposed as the digital currency’s popularity continues to grow in select markets around the world.”