Bitcoin, when used as a medium of exchange, rather than as an investment vehicle, shows users many potential benefits. Part of the appeal is that bitcoins cannot be created at will and the supply of bitcoin, while large enough to function as a medium of exchange, is still finite.

Bitcoins are effectively “created” by solving specific mathematical puzzles using computer processing power. Over time, remaining bitcoin puzzles take increasing amounts of computer power to solve. Parties can independently “mine” for bitcoins using their own computers, or as part of easy-to-join online collectives in which each person’s individual computer does some of the work and receives part of the payoff or via rented networks. As such, “mining” bitcoins comes with associated real-world hardware and electrical costs, which also helps to provide for at least a level of price stability.

Originally published in TRANSACTION WORLD MAGAZINE | © AUGUST 2013.