Something manufactured out of thin air suddenly becoming as ubiquitous as the US dollar? It might seem strange, but the idea of a digital currency is, well, gathering currency.
The Wall Street Journal reported on Friday that Western Union and MoneyGram, two of the world's largest movers of remittances, are studying ways their customers could use their services to transfer money denominated in Bitcoin - though there are no immediate plans.
Two years ago, no one seemed to have heard of that, but the toddler is now hot after a speculative rush. The site Coinbase.com describes the Bitcoin as "a decentralised, digital currency that is changing the world of payments."
Let's get the first thing straight. No government is yet backing Bitcoin, which for Indians may sound as familiar and strange as hawala. Though hawala refers to an illegal transfer of money used to deal in obscure funds, Bitcoin is a different animal. It helps people pay each other from virtual accounts linked to websites and mobile payments.
What is it?
Bitcoin is a currency generated on peer-to-peer computer networks using software. Each user has a Bitcoin Address, which is like a unique identity Bitcoins basically exist in computers and mobile handsets - as bits and bytes. They are traded in the market and exchanged for or against real money.
Bitcoin is one of the first implementations of a concept called crypto-currency, which was first described in 1998. Its origin is still a mystery. It is designed around the idea of a new form of money that uses cryptography to control its creation and transactions, rather than relying on central authorities. There's a Bitcoin Foundation to standardise it.
What is its worth?
From the time that Bitcoins came on the market around the start of 2009 to now some 21 million bitcoins have been generated and on April 9, it traded at $190 per (around Rs. 10,000) Bitcoin and zoomed to $266 the next day and resumed its fall later. In simple words, it is volatile.
Is this a bubble?
In theory, all money is virtual as they only represent underlying information. But they need acceptability. Bitcoins are accepted by some e-commerce vendors and some experts. By and large, acceptability is in question. So one has to wait and watch. The key point is that unlike real world currencies that are backed by gold and other economic assets like oil reserves - or by government assurances, there is none here.
Is this illegal?
It seems not but there is no government recognition and hence Bitcoin certainly does not enjoy legal protection. There have been reports of people downloading Bitcoin mining software from unknown websites and exposing themselves to virus attacks.
How do I get Bitcoins?
You have to choose between an Android mobile or a desktop platform (Windows, Mac and Linux). There is a dedicated software called Bitcoin Wallet (from www.bitcoin.org). Bitcoin-Qt is an app (application) you can download for Windows, Mac and Linux, while Bitcoin Wallet for Android runs on your phone or tablet.
The Bitcoin address works like a bank account. You can also go for Web wallets but that requires some extra work.
You also need a powerful computer that will be switched on most of the time and a high speed Internet connection to download Bitcoin workloads (or hashes, as they are called). The software kind of works to mine the currency and takes time to even get to 0.001 Bitcoins. Or simply go to Internet marketplaces (like www.mtgox.com) to buy the Bitcoin. Or ask someone to gift you some. You can use real cash to buy Bitcoin and then use it as virtual currency, like a prepaid card.
Where does one use them?
They are still trying to answer that one. A conference is due at San Jose, California from May 17 to 19 to discuss the Bitcoin as a futuristic mode for payment but for now, you have some sites that accept BitCoins listed (at https://en.bitcoin.it/wiki/Trade).
Thereare sites that do creative design, Web hosting or sell comics that take Bitcoins and even the odd hotel room is available against it.
What happens if my digital wallet dies?
Er, you can print your Bitcoin wallet. Or back it up on a USB drive. But you need to keep it safe. Treat it you're your credit card details. In the wrong hands, it is lost money.
What's the bottomline?
Bitcoin is still an experiment. When it does get legal - as some expect - it may be covered by law.Your Bitcoin address may be anonymous, but people can find out the underlying "balance" through the address. If you are using an Internet connection, you have to mask it in order to stop people from finding out.
And yes, the deals are irreversible, unless the party you trade with accepts a go-back.