Bitcoins are digital coins you can send through the internet. They are changing finance, the same way the internet changed publishing. Monetary transactions are carried out and verified collectively through a peer-to-peer network with no centralized authority.
There are many advantages to using a open and decentralized currency system. Bitcoins are sent directly from person to person with no mediator such as a bank. Since there is no middle man, and the system is open, there are also no additional or arbitrary fees! Bitcoins are a global currency which coheres nicely with the nature of the global Internet, one accessible currency for the whole world. Again, since there is no one holding your money, your accounts cannot be frozen, and there are no prerequisites or arbitrary limits. Bitcoins are also incredibly secure and most importantly offer complete privacy on your spending.This sounds too good to be true, so how do they do it?
Bitcoins can be generated by anybody connected to the internet. That’s right, you can actually mine for Bitcoins. All you need to do is run a free application called a “Bitcoin miner”. This software uses a brute force technique to discover new Bitcoin signatures, this takes massive amounts of computational power. The Bitcoin signatures are structured in such a way that new bitcoins will be “discovered” or “released” over time in a predictable manner.
Bitcoins are stored in a digital wallet, much like major online banking systems. There are Bitcoin exchanges that accept dollars, euros, yen and more. There are already over $200 million USD worth of Bitcoins in circulation.
I believe that Bitcoins are at least are a primitive solution to an inevitable global currency. Due to their secure and private nature, Bitcoins have received a significant boost in popularity for illegal purchases and drug trafficking. However, they are now becoming more mainstream and more widely accepted, you can even order pizza! There are several disadvantages to the Bitcoin system as well although once these are sorted out we may see Bitcoins becoming a viable option for Internet commerce.
Check out this video for a brief graphical introduction to Bitcoins.