Computer Geeks Make Money. Literally. What You Need to Know

Nobody knows exactly who they are. But a group of computer geeks have created a virtual currency called "Bitcoins" that's got everybody from the FBI to international bankers to the news media talking. Bitcoins are money that flows on the Internet - money that's not backed by gold or governments. But it does buy things - like cars, pizza and guns.


Starting from zero about four years ago, the Bitcoin economy was said to be worth about $2 billion earlier this week. Then came a crash, a suspension of the biggest market that buys and sells Bitcoins and comparisons to the Dutch tulip craze that wiped out investors in the 17 th century.

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Here's what you need to know.

How much is a "Bitcoin" worth?

That varies. In early days, Bitcoins were worth pennies, then a few dollars. This week, a single coin went from $200 to $266. Then it skidded down to $100, landing at about $55 before trading was suspended April 11 on the most active exchange, according to the Associated Press. Others put the value slightly higher, but it continues to gyrate. If you're getting the idea that investing in Bitcoins isn't for the faint of heart, you've got the point. On the other hand, most people handle purchases through a middleman - so there's not much risk in buying something small with Bitcoins.

Is it legal to buy, sell or use Bitcoins?

It's perfectly legal, and usually pretty easy, with a certain degree of technical know-how. Behind the Bitcoin is a complicated system for "mining" the coins, that puts home computers to work making the codes that guarantee the authenticity and uniqueness of the coins uncrackable, but you don't have to dip your toe in those waters just to purchase and use the currency. (see the video below)

What can I buy with Bitcoins?

From dental services to appliance repair to logo design, service providers the world over are banking on Bitcoins to grow their businesses. You can purchase food, digital media and clothing from merchants who accept this kind of cash. There's even a web site called Silk Road where you can buy illegal drugs with Bitcoins. But we'll assume that's not why you're curious about the currency.

You've mentioned drug deals, and wild fluctuations of value. Shouldn't I just steer clear of Bitcoins?

They're not a sensible investment right now. Eric Posner of Slate goes so far as to call them a "Ponzi scheme." So don't buy them in bulk. But there might be situations when you want to experiment with a currency that flows easily between borders, that doesn't " tax" the people who accept it (like credit cards do) and that doesn't require you to prove your credit-worthiness when all you want to do is spend money. You might live in a place where inflation or other pressures make your own government's money unreliable. And banks, as folks in Cyprus are finding out, aren't always the safest places for money.

Before you get involved with Bitcoins, do some reading.

These headlines may be all you need, but the articles are full of alarming details:

Don't get bitten by Bitcoins (CNN)

An introduction with a positive spin:


Also of Interest


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