Have you heard of Bitcoins? Neither had I until this morning. Apparently they’re an online currency that isn’t tied to any nation and isn’t centralized by any particular bank. They were created by an computer programmer calling himself Satoshi Nakamoto after the fallout of the 2008 Global Financial Crisis. Apparently he wanted to create a currency that couldn’t be devalued. And it’s working – in fact, the opposite seems to be happening. Since the start of this year, the Bitcoin seems to have increased in value by 1000 percent. In May 2010, a programmer in the US bought two pizzas for the hefty price of 10,000 Bitcoins. Last month, a different US citizen reportedly bought a Porche Cayman for the low low price of 300 coins.
According to one online Bitcoin administrator in Australia, the currency is built on a highly complex algorithm which means there is no central control point and that there is no way to produce more than 21 million coins. That number hasn’t been reached yet though – rather, 25 new coins are created every ten minutes by people called Bitcoin miners, with that output halved every four years until the limit is reached in the year 2140.
Bitcoin miners – now that’s a concept I’m still struggling to get my head around. As far as I can tell, Bitcoin mining companies are responsible for solving the algorithm. Once their computers get the equation down to a 64-digit number, the next injection of 25 coins is deposited into their bank, with the acknowledgement of all the other miners around the world. These miners can then spend those Bitcoins at their leisure. Once they send the Bitcoins out there, people can buy them and store them in ‘wallets’. You can get a wallet by making an account on your computer or smartphone.
The monetary value of Bitcoins has been fluctuating wildly since its creation. It’s because of this that it hasn’t been accepted as a legitimate currency yet. Aside from that, it’s the largest form of alternative currency in the world, with a current estimated value of $1.8 billion Australian.
I’m hesitant to say this, but it seems like a pretty solid system. I’m sure all the wallets and retailers out there are programmed to guard against counterfeit coins being created by cyber criminals. They can’t try and cheat the algorithm, because then they would just be legitimate miners. The only place where the system falls down is the safety of the wallets – they can be hacked and raided just like robbing a bank. The world’s largest Bitcoin miner Mt Gox was once hacked and a portion of their Bitcoins stolen, dropping the overall price of the currency by a few cents. A number of exchange retailers have been hacked in the same way, putting them out of business through lack of credibility. But aside from that, it seems like a decent system. I’m prepared to say this will become a more legitimate form of currency in the future.