You have doubtless heard of the new digital money. But what is a Bit Coin exactly?According to a recent article in the New York Daily News, a bit coin is a denomination of digital money invented in 2009 by a mysterious programmer calling him or herself Satoshi Nakamoto. Bit coins are either “mined” using computers or else are exchanged on the open market, much like conventional money, but with greater privacy and without the intermediary of a bank or other financial institution. Bit coins cross international borders with the same ease as the Internet. Some small businesses are accepting bit coins as if they were currency backed by a government because of the ease of transaction. An open source “public ledger” tracks each bit coin transaction to ensure against fraud and digital counterfeiting.
“Mining” bit coins, according to Business Week, is done by computers that tally and certify the transactions of all other bit coin users around the world and solve a complex mathematical puzzle. If a computer solves the puzzle before anyone else, it earns 25 bit coins. A new, more complex puzzle is then uploaded and the process begins all over again. In this way the supply of bit coins is kept limited, insuring against inflation. The puzzle has become so complex, that it is beyond the ability of ordinary desk top computers to solve. People have spent a great deal of money building dedicated computers for the sole purpose of mining bit coins. Some have even made money selling such machines to others for a hefty price.
One can exchange bit coins for more conventional money. While the price of bit coins have gone up and down, as of this writing the exchange rate is one bit coin for $1,000. This has resulted in the rise of bit coin speculators, which has economists troubled. Some have compared the sharp increase in the price of bit coins to the 17th Century Dutch tulip craze, in which the flower was bid up to absurd prices, only to crash suddenly, leaving many speculators destitute.
Some government regulators worry about how the widespread use of a digital currency will affect monetary markets. Others worry about how hard to track transactions can be used for illegal enterprises. Thus far governments have been slow to adjust to the use of the new digital money. The question arises, are bit coins a fad, soon to die off or collapse, or is digital money here to stay? Time will only tell.
Here’s an interesting video clip about Bitcoins http://youtu.be/Um63OQz3bjo