Technically, it’s a person-to-person virtual currency network. When you use bitcoin, you’re actually receiving protected digital keys that you can use to exchange for goods and services from other folks who accept or use Bitcoin.
If you buy an item, that coin transfers to the next person, just like passing on a dollar at the grocery story.
However, Bitcoin takes a different tack from early attempts at virtual coins.
There are a few ways you can get Bitcoins. You can:
- Buy them at an exchange.
- Accept Bitcoins as a payment
- Find a local trader
But there are other less traditional ways to get Bitcoins. You can:
- Create a new block by taking part in a mathematical task that helps the authenticity process.
- Participate in a mining pool. (Using your computer power to help create Bitcoins.)
The genius is in the way the system attempts to verify the Bitcoins. When you have a Bitcoin, you actually have two keys that are connected by a mathematical formula. Both keys must match up to be authenticated.
Just like other forms of currency, the value of Bitcoins varies. There are only so many Bitcoins available, so the coin itself gets value from the scarcity of the currency, as well as mining and block-creation tasks. That makes Bitcoins attractive–and scary, depending on how much risk you can accept. The past couple of weeks, Bitcoin investors have been happy. The value of the currency has quadrupled to $40 million. Smart Money has an article about a 200,000 percent increase in Bitcoins.
On the other hand, some people are afraid to jump on the Bitcoin bandwagon because of a long history of failed internet currencies. (If anyone remembers Beanz and Flooz, they’re a couple of examples.)
I’m not sure whether Bitcoin will be successful, but it will be interesting to watch. At the very least, it’s nice to know that there’s a currency available that itsn’t connected to the Federal Reserves funny money machine.
We’ll definitely keep an eye out on Bitcoin.
More info at Bitcoin.org