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04/11/2013

What the heck is bitcoin?

Bitcoin
A sign announces a proprieter's loyalty to bitcoins, where they are also accepted for payment, at a pub in Berlin, Germany. (Sean Gallup/Getty Images)

Are you distrustful of central banks? Afraid Cyprus may happen here? A bit of a gambler?

If so, you may want to buy up some bitcoin, the digital currency riding wild highs and lows in the unregulated world of the Internet.

Bitcoin is a digital currency that uses peer-to-peer technology to transfer. You keep bitcoins in your virtual “wallet” on your smart phone or desktop, transactions are more or less free and everything is completely unregulated.

But just like any other bubble, bitcoins can burst and take you on a wild ride.

Check out Wednesday’s trading results. Take heed, this is not for the financially weak of heart: The currency soared to $250 then sank to $150. At the lowest point on Wednesday, it lost 61 per cent of its value, according to Business Insider.

In fact, the dips were so low that Mt. Gox, a large bitcoin exchange, stopped trading on Thursday in order to let the market cool. Business Insider said trading will resume at 10 p.m. ET.

Where did this virtual currency come from?

Interesting story. The founder is somewhat anonymous and walked away from the invention years ago.

Bitcoin was one of the first experiments into crypto-currency -- with a belief that no central authority was needed to monitor transactions or creations, thus making it quick and easy to move digitally across borders.

Bitcoins are known as “BTC”, for example, “I have 50 BTC.”  They aren’t really a physical entity, they are just a number with a bitcoin address.

In 2009, the first bitcoin concept was published electronically under the pseudonym of Satoshi Nakamoto, according to the bitcoin website.

But by 2010, Nakamoto left the project, never revealing his or her true identity. The site notes that bitcoin gained rapid media attention in July 2011 during a massive rally. Not surprisingly, that bubble burst and now the currency has climbed right back up to previous heights.

Other than being the latest Internet craze and creating a ton of chatter, who knows what bitcoin will do next.
PandoDaily has this helpful video explaining what bitcoin is:

 

Tanya Talaga is the Star's global economics reporter. Follow her on Twitter @tanyatalaga

 

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