4.23.2012

A Quick Note on Online Currencies

A concept recently came across my desktop which intrigued me enough that I took a few minutes to look into it further. The concept is online currencies (like Bitcoin) and the exchanges upon which they trade (like Mt.Gox). As regular readers might recall, we have spent some time here and there pondering the merits and efficacy of alternative currencies, so it may come as no surprise that the concept of web-based currencies would be of interest.

While we are teetering dangerously into some internet concepts I admittedly have no expertise in, Megan Brown explained Bitcoins while writing for my legal alma mater's weekly in an article published late last year:

"Bitcoin is an example of a digital currency, a monetary system that stores value and can be exchanged on the Internet. While it is in some respects similar to the virtual currencies of some online games — such as the Linden Dollar in Second Life — Bitcoins can purchase real goods in the real world.

After downloading the Bitcoin software, a person can acquire Bitcoins in two ways. One can either “mine” Bitcoins or purchase them at an exchange, akin to exchanging US dollars for a foreign currency. “Mining” Bitcoins refers to creating a new algorithm to verify past Bitcoin transactions in return for a small number of new Bitcoins.

No central authority like a central bank or clearing agency regulates the use of Bitcoins. This makes them appealing to those who disapprove of the role central banks play in monitoring the monetary supply."

Brown also notes that the founder of Bitcoin has gone by the pseudonym Satoshi Nakamoto since creating the peer-to-peer network in 2009.

At this time, it is unclear to me whether Bitcoin is a practical alternative for anything other than niche, small-scale web-based transactions. It is also a concept which would seem ripe for nefarious interference. That said, it is certainly intriguing and I will be sure to post on any interesting updates I see. 

UPDATE: For those of you on Twitter, @DigitalCashNews is a good source for the latest news on this topic.

5 comments:

  1. Anonymous23/4/12 15:55

    There is a really good Planet Money (NPR) podcast that explains Bitcoin. You can check it out here: http://www.npr.org/blogs/money/2011/07/13/137795648/the-tuesday-podcast-bitcoin.
    -SW

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  2. Thanks so much for checking in and sharing this resource with our readers. This is already a trending topic on the site, so I am sure it will be appreciated.

    JS

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  3. Jct: Bitcoin is based on nothing while LETS timebanks are based on hours of labor. So why would the system based on nothing be making the mainstream news while the other systems based on something make less? Probably so that when Bitcoin crashes, they can outlaw all the other timebanks that were working at the same time. Why introduce an inferior model when a superior model exists?

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  4. Hi King,

    Thanks for the comment. I think there very well might be something to your assumption, and it would hardly be the first time authorities targeted the loudest, splashiest (and often least stable) guy in the room.

    That said, everyone likes a good mystery and it is possible that a lot of the hype surrounding Bitcoin comes from the inherent mystery in having a pseudonymous founder with an unknown location. Meanwhile some of the others have something to them, making them a bit less sexy.

    If I were pressed, I would probably say it is a little of both of these factors which are playing into the current media attention.

    Thanks again for stopping by and sharing your thoughts.

    JS

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  5. In my consideration, the best Bitcoin exchange company is YoBit.

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