Bitcoin is one of the hottest investments on the market today, but is it right for you?

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In 2009, an unknown individual or group of individuals known as Satoshi Nakamoto developed software that would be the basis for a new form of money: cryptocurrency.

Initially, bitcoin and its brethren were just a hobby for computer programmers and math nerds, but recently, it has become an increasingly popular topic among investors, banks, and governments, who wonder if it might actually start competing with traditional currencies such as the United States dollar and Japanese yen.

It seems like Bitcoin has been in the news quite a bit recently, but if you are like most people, you probably haven't heard of it before and have no idea what it is. In spite of this, some estimates indicate that over 106 million users around the world purchase and sell bitcoins on a regular basis, and more than 100,000 merchants and vendors accept bitcoins as payment.

However, does that constitute the definition of a currency? Could you be missing out on the cryptocurrencies bandwagon if you do not jump on it soon enough?

It is your government's assertion that your dollar has a value that makes you believe your dollar has value. In the event that your bank informs you how much money is in your account, you trust their information.

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Cryptocurrencies, however, are unique in that no authority--no government, no bank--can enforce their value or certify their accounting. The bitcoin transaction is instead recorded on a public ledger called a "blockchain", which is distributed among thousands of computers around the globe.

In order to update this blockchain, a special mathematical problem must be solved and a substantial amount of computer power is required. The bitcoin "miners" are those people that are responsible for creating and updating the blockchain and are rewarded for their hard work with shiny new bitcoins, each one imprinted with information about the entire history of bitcoin transactions since the blockchain was created.

Essentially, it's as if this dollar bill holds an archive of where every dollar bill has ever been throughout all of its recorded life--and also where every other dollar bill has ever been as well. Since each and every one of us knows exactly how much each other should have at any given moment, it is impossible to counterfeit bitcoin.

Your bitcoin "wallet" doesn't actually contain bitcoins, it's just a secret encrypted key that provides you with access to however many bitcoins the blockchain claims that you have in your wallet. This means that, unlike a bank that will issue you a new debit card if you lose yours, it is not possible to obtain a replacement key.

An individual in the United Kingdom lost the hard drive containing his key, resulting in $100 million worth of bitcoins being permanently lost in cyberspace limbo.

That's unfortunate. The lack of regulation of Bitcoin has made it the currency of choice for activities that may be viewed as less than savory. Because bitcoins provide pseudo-anonymity, they are frequently used to pay for drugs, prostitution, and other black-market items.

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Nearly half of all Bitcoin transactions are illegal, according to a study conducted at the University of Sydney. As a result, new cryptocurrencies such as Monero are gaining popularity due to their claim of being completely anonymous.

The lack of mainstream acceptance of bitcoin is due to a number of other factors.

There has been a lot of volatility in the market recently, as you have probably heard in the news. The price of one bitcoin has fluctuated from around $5,000 to nearly $60,000 in the past two years, before returning to around $19,000 recently.

The prices on the menu board would need to be regularly updated even if your local coffee shop accepted Bitcoin. It is possible that your coffee will be cold by the time you receive it because updating the blockchain, in Bitcoin’s case, can take quite a while.

Considering that bitcoin is not currently feasible as a mainstream currency, what is the point of everyone talking about it?

Bitcoin is not regarded as a currency by most people, but rather as a speculative investment. Any resource that fluctuates wildly in price, whether it be gold, tulips, or beanie babies, will appeal to those seeking to become wealthy very quickly. As a result, there are some individuals who find themselves in this situation.

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However, speculative investing involves an extremely high level of risk. It should be noted that bitcoin has no intrinsic value, as opposed to a rental property or a successful business. You are gambling your money on the chance that you can buy the thing from one fool and sell it to an even bigger fool for a much greater sum. It is worth noting that while there is a limit to the number of Bitcoins--the original coders coded in a hard limit of 21 million-- there continue to be new crypto-currencies developed based on blockchain technologies that are being created on a daily basis.

In the end, perhaps Monero, ZCash, or Ethereum will overtake Bitcoin as the most popular cryptocurrency to become the most popular one. According to some experts, crypto may even be adopted by governments at some point in the future.

Therefore, when considering bitcoin as an investment, you should ask yourself two questions: Are you sure you understand what you are purchasing, and can you afford to lose your entire investment?

It is probably a good idea to steer clear of the situation if either of these questions is answered in the negative.

Perhaps one day we'll be renting spaceships on Mars using cryptocurrency, but the popularity of cryptocurrency today is more based on its potential than on its practicality.