Bitcoin :: Online Wampum
From an old issue of Lifehacker :: Maybe you've heard of Bitcoin—it wants to shake the entire global economy, and has become the financial bubble du jour with a skyrocketing value. It's online money—an alternative to dollars and euros. Well what's that mean?
Bitcoin is not real money. It's an online "currency"—virtual tokens that can be exchanged for goods and services at places that accept it, the same way you'd give someone a dollar for a cookie. But unlike a dollar, a Bitcoin has no serial number or any possible mechanism that could be used to trace it back to a buyer or seller. This makes it attractive to drug dealers and/or privacy advocates. ... Bitcoins are backed by no one and nothing and completely unregulated.
Unlike traditional currency, that's backed up by something, (be it gold, silver, or a central bank), Bitcoins are generated out of thin air. Through a process called "mining," a little app sits on your computer and slowly—very slowly—creates new Bitcoins in exchange for providing the computational power to process transactions. When a new batch of coins is ready, they're distributed in probabilistic accordance to whomever had the highest computing power in the mining process. The system is rigged so that no more than 21 million BitCoins will ever exist—so the mining process will yield less and less as time goes on, and more people sign up. This makes the whole system a lot sweeter for early adopters.
Compared to "real money," few places accept Bitcoin at the moment. But that's quickly changing. There's decent incentive for small businesses to accept Bitcoins—it's free to use, and there aren't any transaction fees. At the moment you can buy the services of a web designer, indie PC games, homemade jewelry, guns, and even cocaine. If the internet is the Wild West, BitCoin is its wampum. :: You can read more about the Bitcoin at Lifehacker.