Unless you have been living underneath a rock for the past six months, you have probably heard a number of people talking about Bitcoin, as well as the thousands of other cryptocurrencies popping up around the world.

Many savvy investors will be quick to tell you that all of the rage surrounding these cryptocurrencies is a classic bubble scenario, but there is no denying that some version of cryptocurrency will survive the inevitable popping of that bubble and go on to change the way we conduct business.

If you are in the business of collecting outstanding debts from clients or consumers, you are eventually going to run into a situation involving either Bitcoin or one of the many similar currencies. In order to prepare you for that situation, we have put together a quick primer on cryptocurrencies and a brief explanation of how they have been treated in California courts thus far.

What is Bitcoin?

While the term “Bitcoin” sounds incredibly technical, and the technology that powers it definitely is, the concept behind this new form of currency is actually quite simple.

The general idea is that it is a form of currency that has no affiliation with any government or banking system. All transactions using Bitcoin are recorded in an online ledger known as “the blockchain” which is then recorded across a network of computers to ensure a secure transaction.

With no governments or banking organizations involved in the process, there are no processing fees that come along with Bitcoin transactions, making it extremely appealing for consumers, and quite threatening for a number of large banking conglomerates.

What About Those Other Cryptocurrencies

In addition to Bitcoin, there are many other cryptocurrencies that are popping up just about every day. For financial experts who lived through the early days of the internet, this is very similar to the dot-com bubble that happened in the late 1990s.

All of these new cryptocurrencies are likely inflated well beyond their true value, but that should not diminish the fact that a few of them will likely survive the inevitable crash and go on to change the way we look at banking in the future.

Bitcoin and Bankruptcy

One issue that has recently come up in the California court system is whether Bitcoin should be treated like a currency or a commodity in the case of a bankruptcy proceeding.

In one such case, the debtor attempted to argue that Bitcoin should be treated like the $360,000 in American dollars that they paid for it, rather than the $1.3 million that it was worth at the time.

The court did not make an official ruling in this case, but noted that it was likely to rule that the Bitcoin should be treated like a commodity asset, which could be then be liquidated for whatever the going rate happened to be in order to settle the outstanding debt.

Whether you are all-in on trading these new cryptocurrencies or happy to observe from the sidelines, there is no denying that they represent a fascinating evolution in our current monetary system. By staying on top of how our local courts are treating these new financial instruments, we can be confident in our decisions involving them moving forward.