There’s a really easy way to find out if an issue or topic is being widely talked about by the general public.
Bitcoins: Is your dollar ready for a digital revolution? Credit: FamZoo
Go to Google, search the keywords, then gaze in wonder. Somehow Google is able to instantly generate millions of websites and news articles containing the search term tyou were looking for.
Do we take this for granted? After all, search engines have been around since the invention of the Internet, and it’s easy to forget what technological miracles they really are; sifting through endless streams of data and returning accurate search results..
It is then fitting, that in researching the latest technological invention beginning to sweep the Internet, another technological marvel emerges as an easy and convenient tool whereby people learn what others are thinking and talking about.
Bitcoins have been described as “the digital currency of the future” – a new global phenomenon that threatens to challenge all preconceived notions of currency and currency exchange.
As the chart below illustrates, worldwide interest in Bitcoins has started to grow almost exponentially in the past few of months. Generated by Google Insights, the chart tracks the number of times the term “bitcoins” was used as a search term in the past year.
But What Are Bitcoins?
According to founder Satoshi Nakamoto, Bitcoins are “a purely peer-to-peer version of electronic cash (that) would allow online payments to be sent directly from one party to another without going through a financial institution.”
Not much is known about Nakamoto apart from the fact that the name is a pseudonym, he/she is most probably Japanese, and he/she ended his/her involvement in the Bitcoin project in late 2010.
Much like its founder, Bitcoins thrive on anonymity. Transactions made in Bitcoins are virtually untraceable, with no central authority or intermediary systems to control or prevent the flow of Bitcoins. Rather, Bitcoins rely on a public key cryptography to limit the supply of Bitcoins and ensure the legitimacy of any transactions.
The problem with purely digital currencies is that of double-spending. Economists in the audience will note that digital products like a movie or a text file are non-rivalrous. If you have a copy of my pseudo-trip-rock band's new MP3 album, there's still just as much MP3 to go around for everyone else who wants one. That's not a problem for files, but it is a problem with currency, since the whole point is that there's a limited supply. If you use a dollar at the grocery store today, you can't go out and spend that same dollar at a bar tomorrow.
The usual solution to the double-spending problem is a trusted intermediary. PayPal makes sure that you can't spend the same dollars twice by deducting them from your account before they get added to someone else's account. Visa, MasterCard, and every other bank and payment processor do the same. However, this centralized approach is the one that enigmatic creator Satoshi Nakamoto specifically tried to avoid in the original Bitcoin design. The idea was to use cryptography to create verifiable transaction records without the need to trust anyone but your own calculations.
Just how many Bitcoins are in circulation, and what is their value?
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Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. IMF’s Chief Economist from September 2003 to January 2007. Inaugural recipient of the Fischer Black Prize.
Vice President and Director of the Global Economy and Development Program at the Brookings Institution. Former Turkish Minister of State for Economic Affairs. Head of the United Nations Development Program (UNDP) from 2005-2009.
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