What is Bitcoin?

Like some of the more traditional transaction currencies, Bitcoin can expose a person to regulatory concerns, taxation, and even civil disputes and potential criminal charges. Rules in this area never stop changing, so staying current is critical. From his Orange County office, Bitcoin lawyer Roger E. Naghash keeps pace with evolving legal developments and maintains a deep familiarity with virtual currency issues. We proudly represent clients not just in Southern California but across the country.

Bitcoin is a type of payment system that can be used to buy and sell goods and services. This currency is spent electronically, similar to the way debit cards and credit cards work. Although the concept may seem unremarkable, there are important distinctions that make it different from traditional money.

Fundamentally, a Bitcoin is just a number that gives a special result when it is run through computer software called an algorithm. Bitcoin mining software is used to try to discover these rare numbers. However, these numbers are very difficult to find. This creates a built-in scarcity, generating value for Bitcoins that can be traded for goods or services. As computers get faster, the algorithm used to find Bitcoins cleverly self-adjusts to preserve this scarcity. Therefore, mining Bitcoins can be a challenging prospect.

When special numbers that qualify as Bitcoins are discovered, their existence is logged in a transaction record called the block chain ledger. Similar to a traditional accounting ledger, this ledger is stored by mining computers around the world. A person who mines a certain block gets to keep a small finder’s fee in Bitcoins.

Once mined, this virtual currency can be released to the public. Those new Bitcoins can be distributed into the public when someone buys them for cash, assets, or services. That transaction also goes into the decentralized block chain ledger. However, it is important to note that virtual currencies are not backed by the assurances of any government or bank, nor are they backed by minerals or other assets on deposit.

The Bitcoins are then broken up into pieces as needed, as they pass from one transaction to another. This is very similar to the way ordinary electronic transfers occur. Just like an ordinary dollar bill, a Bitcoin may be used in countless transactions. Each transaction is a logged entry in the public block chain ledger.

Within the block chain ledger, which is publicly available, a Bitcoin’s entire life can be tracked backwards to the computer that mined it. The transactions use the equivalent of serial numbers to represent each user’s account. This generates superb recordkeeping, but there is a catch. Individual Bitcoin accounts can function like anonymous Swiss bank accounts.

This anonymity can help a person maintain his or her personal privacy, which is important, considering that every transaction of Bitcoins is recorded publicly on computers worldwide. But anonymity can also create problems when these transactions are subject to misunderstandings, failure to deliver, criminal transactions, or fraud.

Bitcoin isn’t the only digital currency. Alternative forms may offer enhanced confirmation emails for your transactions. Some competing virtual currencies have names such as “Ripple” and “Litecoin.” When deciding to invest in a digital currency, it is important to evaluate the reputation, safeguards, and general public acceptance of that currency.

The advice of a Bitcoin attorney can help you resolve civil disputes or defend against criminal charges related to digital currency in California or elsewhere in the nation. Roger E. Naghash knows the intricacies of this complex topic. He will listen to the details of your situation and patiently explain your options. He can be reached at (949) 955-1000 or contacted online to start a conversation about how using digital currency might affect you.