Posted on Wednesday, June 08 2011 @ 22:45 CEST by Thomas De Maesschalck
ARS Technica has another piece about BitCoin, an encrypted, peer-to-peer digital currency that is becoming increasingly hot. Unlike traditional currencies like the US dollar and the euro, Bitcoin does not have centralized intermediaries and does not allow the creation of money out of thin air. Details on how it works can be read
at ARS.
In a process known as mining, individual Bitcoin users attempt to generate new coins by checking the integrity of the transactions list. They confirm the previous transactions and attempt to solve a difficult proof-of-work problem which involves exhaustively trying different solutions. There are a very large number of such potential solutions, so the likelihood of finding the solution depends how many other people are looking for it and how much computing power you devote to the problem. The first client to find the solution announces its good fortune to the whole network and earns a little reward for itself in the form of some shiny new Bitcoins.
By finding the newest solution to the proof-of-work problem, a Bitcoin client confirms the history of previous transactions and moved the transaction register forward, allowing new debits and credits to form part of the next block that can be mined to earn more coins. Future coins can't be mined in advance, because the computation to find the new block (and hence create new Bitcoins) relies on the the chain of previous blocks and the history of transactions since the most recent block.
Over the last couple of months the value of Bitcoins has increased at an astonishing rate. Six months ago a Bitcoin was worth just $0.30 but around April its value started soaring at an increasingly exponential rate. After breaking through the $10 mark for the first time last week, a Bitcoin is now worth roughly $29.
