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The Bitcoin Phenomenon/Digital Currency

Digital currency (such as Bitcoin) is a form of currency that only exists online or in the “digital world.  It acts as an “alternative currency”.  At this time, alternative digital currencies are not produced or endorsed by government backed financial institutions or backed by any specific national currency.  These are also called “cryptocurrencies”.  Since Bitcoin is the currently most popular, i’ll use it as the example.


Bitcoin is a new digital currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middlemen – meaning, no banks! There are no transaction fees and no need to give your real name.  More merchants are beginning to accept them: You can buy web hosting services, electronics, pizza or even manicures if you can find a store or vendor that accepts Bitcoin.

The digital cryptocurrency scene is currently a very volatile one.  The lack of real regulation or controls makes most business wary of accepting it as valid payment for products or services rendered.  That being said, many people have invested time and money into “mining” this currency.

Mining is the process in which one obtains Bitcoins.  The actual process uses computing hardware, initially CPUs, but more recently replaced by GPUs (Graphical Processing Unit).  Now there are specialty hardware devices created for the sole purpose of mining Bitcoins.  These are called ASIC (Application Specific Integrated Circuit).  These devices exponentially increased the efficiency (speed vs power consumption) of the mining industry.

Initially anyone could attempt to mine for Bitcoins, but the difficulty level has progressed to the point that unless you invest several hundred dollars into hardware it’s not really a feasible effort.

Bitcoins are stored in a digital “wallet”, either in the “cloud” or on the users hard drive.  The wallet is a kind of virtual account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC.

Bitcoins exchanges are marketplaces that allow people to buy or sell bitcoins using different currencies. Mt. Gox is one of the largest bitcoin exchanges.

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