Bitcoins: I Don't Get It

Do you know how bitcoins work? If so, please explain it to me.

Wikipedia knows what bitcoins are:

"Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009."

Okay, that was about as clear as mud. It goes on:

"Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Research produced by the University of Cambridge estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin."

It must be just me. If there are upwards of five million people using bitcoins or something like it, I have to be the dumb one in the room.

To be honest, other than spending or making it, I don't give money a lot of thought. Wading into the weeds to learn how the "money sausage" is made and what makes a dollar worth a dollar can only lead to madness.

I do recall in school we were taught about the "gold standard," when money was backed by gold reserves. (How they determined the value of gold is a whole different kettle of fish. ) And dollar bills used to be "silver certificates," eligible to be traded for the equivalent amount of silver.

Of course, both have long since been abandoned, replaced by ... what? The answer, according to some, is "faith." We believe a dollar is worth a dollar, so belief becomes reality. If enough of us stopped believing that, the whole system might collapse and send us back to trading ears of corn for a pair of moccasins. 

Now we have bitcoin,  the "cryptocurrency" not tied to any nation; virtual money, as it were, to buy real goods and services. And the value of one bitcoin has skyrocketed. Did you see the recent story about former Dallas Cowboys running back Darren McFadden? He is apparently in a dispute with his former financial advisor over a soured bitcoin investment involving $3 million. The story claims if the $3 million had been used to purchase bitcoins, it would today be worth $237 million. Not a bad return.

Time will tell if bitcoins are just a flash in the virtual pan or how in the future we'll conduct business on an everyday basis. Either way, just don't ask me to explain it.

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