Now that we have at least one brick-and-mortar establishment (the Volstead Act bar) in Spokane that accepts bitcoin as currency, it's probably a good time to explain what it is and how you use it.

 

Short answer:

Bitcoin is magic internet money that you use like PayPal.

Long answer:

Bitcoin is a decentralized cryptocurrency that enables secure peer-to-peer transactions over the internet. Think of it as similar to PayPal, but much more secure and independent of institutional oversight.

All official government currency runs through a centralized bank such as the US Federal Reserve or the Bank of England, giving those institutions the power to control the flow and valuation of money by adding or removing it from circulation and setting other financial regulations regarding it.

Being a decentralized currency means that there is no single source of control over bitcoins or the Bitcoin network. No government, corporation or entity has the power to regulate or control it, for good or for bad. Instead, bitcoins are controlled through a globally distributed computer network that processes and regulates the flow of bitcoins, based on an open-source protocol and software that is freely available for anyone to review or modify.

This means that a bitcoin "here" in the US is worth the same to you as it is to someone in Argentina, Iran or Greece, and isn't subject to the instability or authoritarian nature of those country's governments. Bitcoin isn't guaranteed to be a stable currency — in fact it fluctuates wildly all the time — it is simply independent of central governmental controls.

Being a cryptocurrency means that Bitcoin is a digital currency based on secure cryptographic science. A person gets a public key, or "wallet," which is a really long unique id number like

13Sb4FnsYHQoQiYdkWBRQfNULFMVbbARAz

that is the public address used for transactions. Matched with that public key is an even longer unique private key, like a person's unique signature, that is used to verify transactions.

Just like an email address, anyone can transfer money to a public address, but only the person with the private key is capable of transferring money out from it. Without the exact public/private key pair, the funds can never be compromised or retrieved, and unlike email, there is no password reset.

Every transaction with on the Bitcoin network is permanently recorded in a public ledger called the "block chain," which keeps track of all transactions associated with a public key, and is the network's method of preventing fraud or counterfeiting.

Because transactions are only recorded as being between two or more public addresses, and addresses can't be directly linked to an individual (unless they have published it somewhere or otherwise created a record of it), the Bitcoin marketplace itself is considered anonymous. However, the transactions themselves are subject to the same limitations inherent to all secure internet traffic, including network tracing and IP address logging.

Bitcoins and the Bitcoin network aren't illegal in the US or elsewhere (for now), but the transactions themselves might be. For example, bitcoins have been used to illicitly purchase drugs or firearms and have been used to keep financial transactions off of the IRS' radar, but the same could be said of Federally issued money also.

There undoubtedly will be legislation that attempts to govern it here in the US and abroad, but it seems unlikely that it will be made completely illegal.

For more information about Bitcoin, check out http://bitcoin.org/.

If you want to see the exchange rate of BTC to USD, Mt. Gox is the largest and most reputable exchange marketplace on the internet.

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