The Motley Fool: What’s the buzz on bitcoin?

Ask the Fool

A bit of data about bitcoin

Q: What is bitcoin? – T.F., Flint, Mich.

A: Bitcoin, which debuted in 2009, is a digital or virtual currency. It exists online and permits payments between parties without a middleman, such as a bank. It’s not issued by any government, either. It’s a decentralized electronic payment system, not managed by any single entity the way Mastercard, Visa and PayPal oversee their payment networks.

To use bitcoin, you need to buy bitcoins on one of many exchanges and store them in a digital wallet app. Many retailers like accepting bitcoin because they’re not charged a processing fee, as they are with credit cards.

On the other hand, there is relatively little regulation of bitcoins, and the system is vulnerable to hacking. The value of a bitcoin is very volatile, too. A bitcoin went for about $13 in early 2013, topped $1,000 later in the year and dropped by 23 percent in a single day earlier this month, to below $900.

Foolish Trivia

Name that company

I trace my roots back to the 1933 invention of a sewer-cleaning machine that was built with a washing-machine motor and that cut tree roots out of pipe. That was followed by the 1935 founding of Roto-Rooter, which is now North America’s largest plumbing and drain-cleaning company. Meanwhile, the Vitas company was founded in 1978 as Hospice Care, one of the country’s earliest hospice programs – and now it’s America’s top end-of-life care provider. I’m based in Cincinnati and have both Vitas and Roto-Rooter as my wholly owned subsidiaries. My market value recently topped $2.5 billion. Who am I?

Last week’s trivia answer: Total

the take

Amazon still overvalued?

The main reason many have passed up Amazon.com (Nasdaq: AMZN) is that they think the shares are overvalued. The stock has seemed overvalued for many years, though – during which time it has surged in value.

Amazon is rapidly consolidating retail market share, and it surpassed Wal-Mart last year as the largest U.S. retailer by market capitalization. Since June 2009, the official end to the Great Recession, Amazon has grown its market capitalization more than tenfold. And the shift toward e-commerce is only in the initial stages: Last quarter, e-commerce accounted for 8.4 percent of all U.S. retail sales, and that’s estimated to top 14 percent by 2020.

Many have grumbled that Amazon has struggled with profitability. However, the company has put together a string of profitable quarters on the back of its Amazon Web Services, or AWS, division.

With its market value recently topping $370 billion, Amazon is huge and growing. Risk-tolerant long-term investors may want to add some shares to their shopping cart. (The Motley Fool has recommended and owns shares of Amazon.com.)

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