What Is BitCoin?

Maybe you've heard of BitCoin—it wants to shake the entire global economy. And some people think it might! It's online money—an alternative to dollars and euros. Well what's that mean? It's complicated, but we break it down.

BitCoin is a digital currency... BitCoin is not real money. It's an online "currency"—virtual tokens that can be exchanged for goods and services at places that accept it, the same way you'd give someone a dollar for a cookie.

...with mega aspirations... In their YouTube manifesto, BitCoin's creators say they're going to revolutionise global finance the way the web changed publishing. So! Kind of a lofty goal, aiming to be a global currency up there with (or replacing) the dollar. Right now, that's still the pipiest of pipe dreams.

...that's exchanged via P2P... When you write your friend a check, money from your account is withdrawn from your bank, and then transferred to her bank, and then she withdraws it as cash (maybe). With BitCoin, there are no middlemen (other than the users that comprise the network itself). Money goes straight from you to whomever, through the BitCoin P2P system, with no intermediary agency passing along the chips.

...and generated by its users... This is where it starts to get a little weird! Unlike traditional currency, that's backed up by something, (be it gold, silver, or a central bank), BitCoins are generated out of thin air. Through a process called "mining," a little app sits on your computer and slowly—very slowly—creates new BitCoins in exchange for providing the computational power to process transactions. When a new batch of coins is ready, they're distributed in probabilistic accordance to whomever had the highest computing power in the mining process. The system is rigged so that no more than 21 million BitCoins will ever exist—so the mining process will yield less and less as time goes on, and more people sign up. This makes the whole system a lot sweeter for early adopters.

...to be spent at the few places BitCoin is accepted... Not many places accept BitCoin at the moment, unlike traditional currency. But! There's decent incentive for small businesses to use it—it's free to use, and there aren't any transaction fees. At the moment you can buy the services of a web designer, indie PC games, homemade jewelry, guns, and, increasingly, illegal drugs. If the internet is the Wild West, BitCoin is its wampum.

...or converted into real money. Just like you can trade in yen for dollars, you can swap your BitCoins with other users for several "real world" currencies. And right now, the BitCoin is trading very high! As I write this, one BitCoin is worth $US7.5. Not too shabby at all.

WATCH MORE: Tech News


Comments

    Can't see that being hacked... no way!

    This will either, slow cook to a boil and suddenly be the next big thing, or it will die a disinterested death and never be seen again! Personally I like the idea of getting rid of physical money, but I think it will need "next-gen" quantum entanglement computing to make it secure enough for people to risk it!!

    I assume they had to use the name Bitcoin because the names the Ponzy and the Madoff were just too obvious.

    Seems legit

      Seriously!?

      I always wondered who was keeping the Nigerian Princes in business, I guess now I know.

    "When you write your friend a check"
    "cheque"!

    $7.50 when you wrote this article.

    $897.45 When I posted this comment, I sure hope you bought some!

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