What is Bitcoin?

It’s an electronic cash system that allows online payments to be sent directly from one person to another without going through a financial institution (like a bank) or a third party (like PayPal).

Who’s in charge of it?

No one. Or, rather, everyone who uses it. Bitcoin functions on a peer-to-peer computer network based on cryptography rather than a trusted third party. It is an open-source and self-governing system. A software code maintains a public ledger that records and verifies each transaction without revealing the identity of the users. Users who provide hardware and bandwidth for these transactions are rewarded by the algorithm with new denominations of bitcoin to save or sell into circulation. This process of earning new bitcoin is called “mining.”

How much bitcoin are in circulation, and what are they worth?

Thursday afternoon there were nearly 12.3 million bitcoin in circulation. The value of a single bitcoin fluctuated between $848.53 and $868.93 through 5 p.m. Thursday, according to CoinDesk, a digital currency news site that averages the price of bitcoin across several high-volume exchanges. One year ago a single bitcoin was worth about $13. Bitcoin are released into circulation at a predictable but diminishing rate based on a software algorithm that caps circulation at 21 million bitcoin (which the system is expected to reach in 2140). Bitcoins are currently divisible by eight decimal points; $1 (USD) equaled about 0.0012 bitcoin on Thursday.

What’s are some benefits of using Bitcoin?

You can buy and then save bitcoin, speculating that its value will rise over time. You can buy and then spend bitcoin for goods or services, or transfer it to someone else without interacting with a bank — which means reduced (or sometimes nonexistent) fees.

What are some perils?

Volatility, for starters. Its 52-week high and low produced a difference of $800, with many sharp peaks and deep valleys in between. And bitcoin, like any kind of money, only has value if everyone accepts that it has value. If another, more refined digital currency comes along with a “killer app” that makes it supremely user-friendly, users might sell off and abandon Bitcoin, driving the price into the ground.

I want in. What do I do?

Visiting a Bitcoin ATM in person might prove difficult right now unless you live in Vancouver, so most people obtain bitcoin through an online exchange. These exchanges are viewable at bitcoincharts.com/markets.

Bitcoins are an unregulated, underground online currency and the FEC may permit political campaigns to receive them as contributions. (The Washington Post)

Then what? Can I buy a cup of coffee with it?

Sure, at a coffee shop (or another merchant) that accepts bitcoin. Businesses such as Zynga, an online gaming company, are testing a bitcoin payment system. Two Las Vegas casinos started accepting bitcoin this week. Other early adopters include Wordpress, OKCupid and Reddit.

Dan Zak