Coin of the Digital Realm: Bitcoin and the Future of Virtual Currency

by David Kinkade May 22, 2013. The digital currency Bitcoin has become a focal point as business leaders, investors, regulators, and law enforcement seek to understand how the emerging world of virtual currency may change how we think about money, payments and finance.

While government officials scramble to craft rules—or crack down—on the new currency, online merchants and financiers hope to determine what role digital currency may play in the larger financial and trade systems.

Nicholas Colas, chief market strategist at Convergex, suggests that while digital currency experiments like Bitcoin may be relatively small in scale today, they have broader implications for the future.

“Bitcoin is gold for nerds, if you will,” Colas explains in an April interview with Bloomberg TV. “It is something that a whole new generation of people believe in – the online nature of their lives, their economy – and so Bitcoin resonates with them.

How Virtual Currency Works

Bitcoin, though not the only virtual currency, is the most well-known example of this growing trend. The decentralized digital currency launched in 2009 following the global financial crisis, just as confidence in existing currencies was at a low ebb.

Unlike physical dollars, which can be printed at will by a central bank (thus deflating the value), Bitcoins are designed as a decentralized, limited money supply. The currency’s developers created only about 21 million Bitcoins, which users must “mine” by solving progressively more challenging math problems. Bitcoin miners, often working together in pools, solve increasingly complex math problems to release new Bitcoins into the supply. Bitcoin mining is a highly competitive process that requires substantial computing power, so most Bitcoin users don’t mine, leaving that aspect to the more advanced users. - Read more here: http://www.freeenterprise.com/entrepreneur/coin-digital-realm-bitcoin-and-future-virtual-currency