Phoebe Venable: Bitcoin has potential to become money of the future

Technology continues to amaze us and revolutionize the way we interact with the world.

For those slow to embrace change, technology also can be challenging. Challenges include gaining a basic understanding of new technology, its impact on our daily lives, the security threats it can pose, its functionality, and so on.

It seems the younger generation embraces this constant influx of technology with open arms, ready to dive into the newest gaming systems, phones, tablets and computers with almost a religious zeal. But many of the older and wiser among us hold onto a healthy amount of skepticism when we hear about technology that potentially could change our lives.

Imagine a virtual currency.

Have you heard about the Bitcoin concept? Believe it or not, technology has introduced a new type of digital currency that is gaining a lot of attention in headlines and capital markets. The buzz is not just here in the U.S.; Bitcoin has momentum around the world.

What are bitcoins?

Bitcoins are digital, online-only currency. They are a new form of payment and an alternative form of money. Bitcoin has no central bank that regulates and controls the currency like the Federal Reserve does the U.S. dollar. It is a decentralized peer-to-peer payment network powered only by its users. There are no central authorities or middlemen. It has been described as “cash” for the Internet. No banks, no borders, no imposed limits are involved with these transactions.

For users, Bitcoin is a mobile app or computer program that provides the user with a Bitcoin wallet and allows the user to send and receive bitcoins. Two people, anywhere in the world, can conduct a transaction without a bank account or a credit card. Payments are made from the digital wallet application on your smartphone or computer by entering the recipient’s address and the payment amount, and then simply pressing “send.” To make things even easier for users, many wallets can obtain the address by scanning a bar code or even by touching two phones together. Both the buyer and seller are issued an e-receipt for the transaction.

What can I buy with bitcoins?

Bitcoins are growing in popularity but are is still a relatively new phenomenon.

Overstock.com, WordPress.com and CheapAir.com are among businesses accepting bitcoins. But it will be a while before we can use bitcoins everywhere. Most businesses probably will wait until customers are asking for the ability to pay with bitcoins before they begin accepting them.

Where can I get bitcoins?

One of the more interesting aspects of this new currency is the ability to earn bitcoins through competitive mining. Miners use sophisticated computer processes to solve algorithms that result in a payment of bitcoins. Pick-axing for gold sounds a lot easier, but bitcoins are created from a finite supply in the world. Less complicated ways to obtain bitcoins include purchasing them at an exchange or receiving them as payment for goods or services.

There are about 12 million bitcoins currently in circulation, with a market capitalization of about $13 billion. Just like the value of the U.S. dollar or the Euro, bitcoin exchange values change based upon supply and demand. It also is measured against local currencies. Instead of USD for the U.S. dollar, bitcoin’s standard unit is BTC.

While we wait for bitcoin ATMs to appear, rest assured we will hear more about this interesting technology. Some investors speculate about the future value of this virtual currency, but it will be a long time before such an investment proves worthy for the average investor.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.