I must admit to being more than a little intrigued by Bitcoin, the open source, peer-to-peer digital currency. In fact, anything with the words “open source, peer-to-peer and digital” in its description is likely to pique my interest. But as a currency, Bitcoin operates independently of central banks or a central organisation – which in times of sovereign debt crises adds to its attractiveness.
Very few of us go through the process of thinking through how our currencies actually work. We know enough to understand our local banking systems – and the way that they manage transactions, the money supply and so on – but Bitcoin operates in a completely different way. As a peer-to-peer currency, there is no centralised control. There is no gold standard. To purchase Bitcoins, you need an account with a Bitcoin exchange, like Mt. Gox, which requires a form of verification. But Mt. Gox is not a bank – and once you have purchased Bitcoins you need to store them in a wallet. You can then use those Bitcoins to buy and sell – to transact with others who trade in Bitcoins.
Sounds complicated, right? And it is. Thankfully Duncan Elms has put together a video explaining the way Bitcoins work. It goes some way to clarify some of the complexity that underlies this new, and growing digital currency.
But once you know all this, what will you do? Will you throw caution to the wind and setup a trading account? Will you use Bitcoins to buy and sell real and virtual world things? Or will you watch from afar?
Bitcoin Explained from Duncan Elms on Vimeo.