Bitcoin

It is a digital or virtual currency that uses peer-to-peer technology to facilitate instant payments with no central authority. It uses cryptography for security to avoid being counterfeited. It’s issuance and transactions are carried out collectively by the network.

Bitcoins are created through a “mining” process that involves complex number crunching by the computers in this network, which generates 25 Bitcoins every 10 minutes. They are divisible to 8 decimal places. Bitcoin fractions are called satoshis. The total number of Bitcoins to issue has been limited to 21 million  for avoiding currency devaluation. Being digital currency, it is stored in a digital wallet, and transactions are verified by a digital signature which uses public-encryption key.

As bitcoin is decentralized and not issued by government, it is free from any governmental interference and manipulation as with other currencies. But being a complex product it’s widespread adoption is doubtful. Further, as it is digital and has no physical form, any computer or media storing it is damaged, will result in it’s loss.

Compared to “real money,” few places accept Bitcoin at the moment. But that’s quickly changing. There’s decent incentive for small businesses to accept Bitcoins—it’s free to use, and there aren’t any transaction fees. It can be swapped with other users for “real world” currencies and it is trading very high. Earlier in 2011, one Bitcoin was worth $7.50 and today it’s over $250.