04-17-2011, 03:27 PM
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Join Date: Aug 2003
| | Bitcoin?
Jerry Brito (of the Mercatus Center at George Mason University) writes about a payment processing system that's more or less impossible to shut down The introduction to Bitcoin
To transact online, you have to have an account with a third party like PayPal that you trust will follow your payment instructions. There's been no such thing as "online cash," no currency that could be exchanged untraceably between two persons without a third party intermediary--no such thing, that is, until now. |
Bitcoin, an open-source project created in 2009 by Satoshi Nakamoto, is the world's first distributed and anonymous digital currency. That's a mouthful, but it's not difficult to understand.
Since the web has been around, digital currencies have come and gone. Think of Facebook Credits, a digital currency that allows you to buy virtual goods on Facebook applications, or Microsoft Points, the currency of the Xbox Live Marketplace and Zune store. You exchange dollars for them just like you might exchange dollars for euros, then use them to buy stuff from sellers who'll take them, say a patisserie in France, or FarmVille in Facebook.
The web has also seen all-purpose digital currencies, from defunct dot-com bubble start-ups Flooz and Beenz, to the slightly more successful e-gold. Unlike cash, however, digital currencies to date have had a third party intermediary monitoring transactions. That's because digital cash is different from physical cash in one very important way: If I hand you a 100 euro bill, I no longer have it. You can't be as sure of that, however, when the cash is just 1's and 0's. So it's been necessary to have a trusted intermediary deduct the amount from the payer's account, and add it to the payee's.
Bitcoin is the first online currency to solve the so-called “double spending” problem without resorting to a third-party intermediary. The key is distributing the database of transactions across a peer-to-peer network. This allows a record to be kept of all transfers, so the same cash can't be spent twice--because it's distributed (a lot like BitTorrent), there's no central authority. This makes digital bitcoins like cash dollars or euros: Hand them over directly to a payee, and you don't have them anymore, all without the help of a third party.
Very interesting work going on here... I think I have an understanding of how it works and all I can say is "WOW!"