A new peer-to-peer currency called Bitcoin

I remember reading about the virtual currency used in SecondLife. I thought: how strange is that? People are willing to pay each other real money for fake money. Because the currency was sold on Ebay and limited to use inside the game it seemed odd, but not world-changing.

Well, this is even stranger. Bitcoin is a new currency. It's not very much different from the fiat currencies (the dollar, the pound, the euro). You can exchange dollars for bitcoins on a (closed, unregulated) exchange, and you can purchase goods and services. Because bitcoins are untraceable, many merchants on Silk Road, the cloaked drug marketplace, deal only in bitcoins.

Unlike fiat currencies, bitcoins are not backed by any government and they are traded using open source, p2p software, similar to Bittorrent. I don't really understand how it works, but it seems that there's a program that generates a pre-determined, finite supply of bitcoins, and that it will stop generating the coins when it reaches 21 million coins. The value of each coin is determined, I suppose, by the exchanges with other currencies. Right now you can exchange bitcoins for about 12 fiat currencies. The value of a bitcoin has tripled and tripled again, making a few people millionaires in bitcoins, at least. Take a look here to see current exchange rates: http://bitcoincharts.com/markets/ So, will the value of this currency hold? Will we soon buy a coffee for half a bit? We shall see. The crepe place down the street from me accepts bitcoins, and has a large sign in the window saying so.

Bitcoin Triples Again at Smartmoney.com.

More here about the process of mining coins. It seems that one can convert 'raw materials into coins' via graphics card processing power...yes, a graphics card. How it fits into the currency is a mystery to me: http://www.weusecoins.com/mining-guide.php

Want to purchase a few bitcoins? Download the software here: http://www.bitcoin.org/