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article imageInternet currency BitCoin exchangeable for real world money

By Holly Goodwin     Jul 11, 2011 in Internet
A new form of currency called BitCoin has been sweeping the internet and can be exchanged for real world goods or money. The most interesting aspect is that any user can generate BitCoins out of thin air.
BitCoins are generated through computers solving complex algorithms. A user must download a mining program which then sets the computer working on the algorithms it needs to solve in order to create the BitCoins. Earlier this year BitCoins were easy to generate, but in order to stop inflation from occurring only 21 million BitCoins will be allowed to exist. This means that the algorithms steadily increase in difficulty with each BitCoin that is generated.
As of now simply using the CPU's power will scarcely bring results. The GPU (graphics processing unit, such as video cards) now must be used to generate any noticeable sum of BitCoins since the GPU's power will work through the algorithms much faster. The more powerful the GPU, the more chance there is for the mining programs to generate BitCoins.
BitCoin creator Satoshi Nakamoto had been working on the concept since 2007. Very little is known about Nakamoto other than he is likely from Japan. In 2008 he wrote a paper explaining how BitCoins work and why they are better than any other digital currency.
What gives BitCoins their worth is that there is no central organization controlling them, the transfers are anonymous and free of cost, and they are immune to double-spending which other digital currencies have failed to get around. Transferring BitCoins to one another also requires no middleman because it works on a peer-to-peer network where a direct connection is made to another user's computer.
BitCoins have been accepted as real currency in numerous places and can be viewed as an alternative to PayPal for immediate transactions. They can be exchanged for gift cards, gold, online services, or just traded for their equivalent of real world money. Their exchange rate has been as high as US$30 per one BitCoin. Since trading BitCoins requires no personal information to be given out they became a popular way to pay for drugs on a website called Silk Road that has since been taken down. Senator Charles Schumer called BitCoin "an online form of money laundering."
There's quite a bit of criticism aimed at BitCoins from the ability to easily purchase illegal items to outright calling the currency a scam. In June a hacker stole around US$1000 worth of BitCoins from the main exchange site, Mt. Gox, and caused the value to drop considerably. Mt. Gox said that it would invalidate the post-hack trades and restore the currency's value. Several pro-anonymity groups have stopped accepting BitCoins due to the legal haze surrounding them, and there's already been a trojan virus made specifically to steal BitCoins from users. In response to the security breech BitCoin consultants said, "The thing to realize is that BitCoin is still in very early stages [and] not meant for general use." One man lost the equivalent of $500,000 to the trojan but the consultants replied by saying that his computer had inadequate virus protection and that it was akin to walking around with $500,000 in his wallet.
As Business Insider pointed out, if someone has thousands of dollars worth of BitCoins stored on their computer and something bad happens to it then they loose everything. Just like how having no middleman is what made BitCoin so popular, it's also its greatest weakness because there's no service like PayPal there to reimburse lost cash. Could BitCoin become a viable currency despite these flaws? Only time can tell. For the time being BitCoins are still free generate with the only cost being the electricity it takes to run the computer.
As of the time of this article's creation one BitCoin is worth US$14.
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