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Bitcoin

An untraceable, peer-to-peer digital wallet system introduced by Satoshi Nakamoto in January 2009 (Nakamoto's identity is unknown, unverified, and he has not been publicly heard from in print or...

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Definition: Bitcoin

An untraceable, peer-to-peer digital wallet system introduced by Satoshi Nakamoto in January 2009 (Nakamoto's identity is unknown, unverified, and he has not been publicly heard from in print or otherwise since the end of 2010).

Bitcoins are a true "virtual currency," because they are created out of thin air and not issued under the auspices of any government. Considered a Ponzi scheme by many, the value of a Bitcoin (BTC) has gyrated wildly, from a few cents to as much as 35 U.S. dollars. In December 2011, a single BTC was worth about $3.

People Make Their Own
The strangest thing about Bitcoins is that they are created by users in their own computers with a Bitcoin "miner" application. Although the generation can take a very long time, rafts of servers have been employed to make them faster, and a botnet was discovered that harnessed unsuspecting users' computers to do the job. Bitcoins can also be bought and sold for real money at a Bitcoin exchange. As of 2011, there were approximately six million Bitcoins in existence; however, the total is theoretically capped at 21 million by the year 2140.

There is no central clearing house or repository for Bitcoins. The Bitcoins and the transactions are stored in each user's digital wallet in the computer, making it a nearly untraceable currency. Although the transactions themselves are available to the public, the source and destination addresses of the Bitcoin transfer are encrypted.

There Is a Market
A market exists, because there are companies selling products and people willing to do work in exchange for Bitcoins.

Traction - Then Hacking
By late 2010, Bitcoins were beginning to gain some traction in the world, but mostly in the open source and underground communities. By mid-2011, there was an attack on the Mt. Gox Bitcoin exchange, and that June, someone claimed a hacker extracted 25,000 Bitcoins from his personal computer worth nearly $500,000. Also, in June 2011, members of the U.S. Congress began a legislative attempt to make the currency illegal. For more information, visit www.bitcoin.org. See Web payment service.



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