Breaking down Bitcoin

Breaking down Bitcoin

ODESSA, TX (KWES) - There's been a lot of speculation surrounding Bitcoin this week after its price surged over $10,000 this week.

Stories are making headlines across the internet on how a $100 investment would now be worth $1,000,000 if you had made it back in 2011, when the currency was on par with the U.S dollar.

So, here are some of the basics to understanding the crypto-currency:

  • It's a digital currency kept in an electronic wallet on your smart phone or computer.
  • It's decentralized from all governments and is used for peer to peer payments over the Internet
  • The value of Bitcoin comes from its usage and the verification of transactions made with it.

The process that produces Bitcoin is called "mining" and it essentially pits competitors with high powered computers in a race to solve computationally difficult puzzles that verify a string of transactions.

The winning miner is rewarded a transaction fee and a Bitcoin bonus.

There is a finite amount of Bitcoin ever produced and only part of it is in circulation. Thus generating the supply and demand that drives its price fluctuations.

A local investment manager, Mickey Cargile, stated why the price of Bitcoin can be so volatile.

"Bitcoin is a speculation play. We don't know the true value of it, because it's not backed by any one institution. Thus it's a risk that's probably not suitable for most people," said Cargile.

The IRS has also cracked down on Bitcoin providers in the U.S.

The agency recently won a suit in a San Francisco District Court ordering Coinbase to reveal information on more than 14,000 users who sent or received more than $20,000 through the service in a single year's time between 2013-2015.

Cargile says its a wake-up call for people who thought they could get away with tax evasion using the service.

"It's a misconception that Bitcoin is anonymous. The IRS can track what you're doing and so if you are trading Bitcoin and making profits, pay your taxes cause the IRS will find you," said Cargile.

There's no telling the future of Bitcoin, but it's development is certainly worth keeping your eye on.

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