Bitcoin is the digital currency that thrills nerds, inspires libertarians, and incites the passions of economists who debate the value of money made from nothing but ones and zeroes. Alternative currency startups are being funded by venture capitalists while visionaries gush about the world-changing possibilities of money free from government control. Silicon Valley is the natural center for Bitcoin mania. An advocacy group named Arisebitcoin recently put up 40 billboards. around the Bay Area with messages such as: “The Revolution has started … where do you stand”.
As with an actual precious metal, Bitcoins are in limited supply—they must be “mined.” Unlike with precious metals, this mining is done purely by computer. Miners set their machines to run a series of complex calculations that tally up and certify all the transactions of other Bitcoin holders around the world. If the miner’s computers complete these calculations and solve a complex mathematical puzzle before anyone else, he earns about 25 Bitcoins as payment. It’s a nice haul: With the price of each Bitcoin nosing up near $1,000, that’s $25,000 for 10 minutes or so of work. For the moment at least, miners are the rare grunts who can also get rich. Over the past six months the price of a Bitcoin has shot up, dived, shot up again—and kept on rising, making Bitcoin mining one of the most frenzied corners in technology.
What would be the result of globally implementing a crypto-currency both in terms of the effect it would have on exchange rates as well as the effect it would have on monetary policy given that the supply is controlled only by a computer program.
Source: The Economist, January edition.