Among Bitcoin's challenges are hackers, volatility and regulations.
Bitcoin – the most prominent of digital currencies -- is going mainstream and appearing in shops, stores, and ATMs. Venture Capitalist Marc Andreeson puts Bitcoin in the same category as personal computers and the Internet -- something revolutionary, with its potential initially recognized by just a few.
How it Works: Bitcoin Vending Machine Purchase
So how does it work? In the first Bitcoin vending machine transaction in January 2012, shown at left, Bitcoins were transferred from the buyer’s online account to the machine’s account via a QR code, and the product was delivered.
On Feb. 18, a machine debuted in Albuquerque that changes greenbacks into Bitcoins, and Bitcoin ATMs are scheduled to appear in Austin, Texas, and Seattle.
Despite their popularity, Bitcoins still face some hurdles. First, hackers. Second, volatility. Third, regulatory restrictions.
In November 2013, hackers got $1.2 million from one Bitcoin exchange, bringing questions about security of its encryption. And as the demand -- or lack thereof -- fluctuates, the value of one Bitcoin has fluctuated as well, ranging from a low of $13 to a high of $1,000. And third, Bitcoin is under scrutiny because of its potential for use by criminals in money laundering or drug sales.
In November, virtual currencies were the subject of a U.S. Senate hearing. Testimony as to their innovations and benefits in an increasingly digital society were matched by concerns such as who runs the exchanges and under what regulatory framework.
Bitcoin operates without a central bank and users are anonymous -- and businesses love it, because while credit card companies charge hefty transaction fees, Bitcoin fees are tiny. The Senate hearing was most likely the first step in a long process of coming to terms with digital exchange.