Cryptocurrency: Your Total Cost Is 01001010010

Most people have heard of gold. Most people are familiar with dollars. For a handful of geeky folks, however, the currency they hope will become a global standard is digital. Whether it's a problem or not, the currency you use on a day-to-day basis is tied to the government. The global value of the money in your pocket can vary widely, and if you're a conspiracy theorist, your concern might be that it could be worth nothing in the blink of an eye.

Surely gold and silver are wise investments if you're concerned your paper dollars will drop in value, but using gold as a means to buy a gallon of milk is a bit difficult. Perhaps cryptocurrencies are the solution. The most popular form of cryptocurrency is the Bitcoin. A very simple explanation of how it works is as follows:

  • Users download the bitcoin client and use their computer to solve complex math problems, which create a cryptographic record of any transactions on the Bitcoin P2P network.

  • Users are rewarded Bitcoins for successfully "hashing" the cryptographic record of transactions, and that reward system is how Bitcoins are created.

  • Users then securely transfer Bitcoins back and forth to purchase items, and those transactions are recorded in the cryptographic history for the entire P2P network to see.

The process is, of course, a little more complicated than that, but that's basically how it works. The computers creating the cryptographic history of transactions are called miners, and "Bitcoin Mining" is simply the act of solving complex math problems in order to make a cryptographic record of transactions. Because mining Bitcoins is how the currency is created, lots of people are connected to the network, racing each other to get a solution that will generate a reward. In fact, it's so competitive, that unless you have a high-end GPU that can process the equations extremely fast, there is no point in trying for the rewards.

Are Bitcoins the future of global currencies? Will one of the alternative cryptocurrencies like Litecoin or Solidcoin become commonplace? The number of places that accept cryptocurrencies are extremely limited, so it's not any easier to buy a gallon of milk with a Bitcoin than it is with a lump of gold, but many think that day is coming. What about you? Do you think cryptocurrency has a future, or do you think it's a geeky fad that will fade away? Send an e-mail with "CRYPTOCURRENCY" in the subject line to shawn@linuxjournal.com, and I'll follow up with an article based on your feedback. For more information on cryptocurrencies, check out these Web sites: http://www.bitcoin.org, http://www.litecoin.org and http://www.solidcoin.info.

Shawn is Associate Editor here at Linux Journal, and has been around Linux since the beginning. He has a passion for open source, and he loves to teach. He also drinks too much coffee, which often shows in his writing.

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