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If you’re a regular reader of Slashdot, El Reg or TechCrunch then you’ll no doubt have heard of Bitcoin, the digital currency that has recently started garnering a lot of attention as the currency is gaining significant value. As of the moment of writing this article there are currently precisely 6,859,400 bitcoins in existence (You can check the current number here). The current market value of these is £8.58 each (taken from Britcoin) valuing the currency at £58.8 million or $95 million, not too significant on a global scale but certainly enough to make people take notice.

How do I get bitcoins?

Well, you can buy them from various exchanges for whatever currency you use, alternatively you can create your own through a process known as “mining”. I guess they adopted this term as in a similar way to mining gold you are creating value (in a digital sense if not real world) using your PC. The mining process uses computing power to do some complex calculations to generate new bitcoins, with the difficulty to create these escalating as more come into circulation. Bitcoins are far more efficiently generated by graphics cards than CPU’s, and at the current rate if you bought a £200 ATI graphics card such as a Radeon HD 4950 it could make around £50 of bitcoins in a month. This relies on your computer being on 24/7, and it will significantly increase the power usage of your computer, costing around £5-10 a month in electricity. This is also only going to get worse over time, as the difficulty of creating new bitcoins is scaled up roughly each two weeks, based on the total overall computing power in the Bitcoin network.

A basic principle of the Bitcoin system is that the total amount of currency in circulation is fixed, over time it will approach 21 million bitcoins. Though this may sound like a limiting number bitcoins are divisible down to eight decimal places which gives a huge amount of granularity to the currency.

This currency originated in 2009 from a self-published paper by Satoshi Nakamoto and makes for interesting reading, there are many advantages (or disadvantages depending how you look at it) of bitcoins as a method of online payment compared to the typical payment providers such as PayPal. Bitcoin transactions are made at a very low cost, currently this is 0.0005 Bitcoin which works out £0.00429 – less than half a penny. With no central authority, once a transaction is made it cannot be reversed so there is no chargeback system. Transactions offer a fairly high level of anonymity compared to other payment methods, whilst the complete history of Bitcoin transactions is publically available these show transactions simply between Bitcoin identities which cannot be firmly associated with real-life identities.

Controversy

Bitcoin has certainly had it’s share of trouble, last month the largest exchange Mt.Gox had it’s user database compromised, the end result of this was around 500,000 coins stolen from the users, with a value at the time of around $9 million. This resulted in the exchange shutting down temporarily, due to the nature of the currency this cannot be reversed, the full story is available here.

The value of bitcoins has been extremely volatile, at the start of May they were worth around $1 each and by the end around $30, as the currency grows this volatility should reduce if it can prove that it is stable and secure.

It will certainly be interesting to see how Bitcoin pans out, I wouldn’t recommend investing heavily in the currency or mining them as it would be high risk given the volatility and security problems that have been seen so far. As this currency moves forward and more secure exchanges such as Ruxum – ran by former Wall Street hotshots – start popping up it may grant more weight to this currency and fuel it’s success.