New Virtual Currecy
Bitcoin is a virtual digital currency payment system for worldwide payments with low or zero processing fees and no intermediary financial institutions such as a central bank or central organization. Bitcoin was introduced by a pseudononymous person named Satoshi Nakamoto in 2009. The software is a community supported open source project released under the MIT license. Owners of bitcoins keep their “savings” in a wallet on personal computer or smart phone.
Bitcoin uses a peer to peer technology (P2P) where instead of all computers on the network linked to one centralized server, each computer acts as a client or server and the software is distributed across the network to each computer with no central infrastructure.
According to CNNMoney “Mt.Gox ” is the main trading exchange for Bitcoins. Over $1 billion in bitcoins is now circulating exceeding the value of the entire currency of 23 countries.
The recent controversy over Cypriots in Europe having money debited from their account without notice speaks to the need for a more independent currency.
The following infographic shows how a Bitcoin transaction works from Zerohedge:
Controversy and Challenges
Bitcoins are controversial because transactions can take place anonymously online and it is feared that drug cartels will take advantage of the new platform to facilitate more business. According to some reports this is already happening. A site called Silk Road allows the purchase of the illegal drugs with bit coins. Traditional financial exchange regulation require the verification of the identity of anyone exchanging money and large transactions be reported to governments.
One Bitcoin exchange reportedly lost over $400,000 when its system was hacked and is without recourse to a legal framework; there was no way to seek recompense. An application called Bitcoin Gold allows users to track the exchange rate of the new currency.