Will Bitcoins Change the Money Game?

The bitcoin is a virtual international currency first introduced in 2009.

Bitcoins are unregulated and out of the control of any single government. They are also 100% digital — there is no corresponding physical coin or paper to back or represent bitcoins in the real world. But you can use them right now to buy goods and services over the Internet internationally. You can even purchase a pre-paid Visa card with bitcoins; a $50 visa card today costs about 5.7 bitcoins.

Bitcoins are not deposited in banks. They are privately held, and exist only in a peer-to-peer Internet environment. All bitcoin transactions are permanently archived, but individual privacy is maintained through a sophisticated cryptographic algorithm.

How do you get bitcoins? You can buy them from someone else, or you can “mine” them — create them — for yourself.

Think of bitcoins as the byproduct of a software program solving a puzzle. Each bitcoin is the result of a calculation. If you are mining bitcoins, the computing resources required to solve the puzzle takes place on your own computer. This is a form of distributed computing, where your desktop computer’s spare CPU cycles are used to crunch the algorithm and create bitcoins.

The total number of bitcoins that will be available over time increases at a predictable rate. It doesn’t even matter how many computers are contributing to the calculation — the algorithm itself regulates the rate at which bitcoins are created.

The bitcoin economy grows at a known rate because its solution is completely predetermined by the software/ledger. It’s currently a $3 million market, with between 5,000 and 10,000 people trading about $30,000 on an average day. Right now US dollars are trading at about $14 per bitcoin.

Bitcoin attracts passionate advocates — and detractors. One day last June the Bitcoin market suffered its first Black Friday: A one-day crash of 30%. Then there was the hacker-caused crash that evoked doubts about Bitcoin’s long-term security as a standardized, open source, international currency.

Could Bitcoins (or something like them) someday work as a defacto world currency to compete with national currencies in an open market? Even the CIA wants to know…



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