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Unlike traditional currencies where central banks decide how much money to print, no central authority governs the supply of Bitcoins. It is not backed by physical assets, is not run by any person or group, and its value depends on people's confidence in the currency. Bitcoin recently broke $200, compared to $12 a year ago and the market remains highly volatile.
This electronic cash system concept was introduced in a 2008 paper by a developer known only as "Satoshi Nakamoto". Bitcoin transaction are processed by servers, called bitcoin miners, which confirm transactions by adding them to a ledger, updated and archived periodically using peer-to-peer filesharing.
In addition to archiving transactions, each new ledger update creates some newly minted bitcoins. The number of new bitcoins created in each update is halved every 4 years until the year 2140 when this number will round down to zero. At that time no more bitcoins will be added into circulation and the total number of bitcoins will have reached a maximum of 21 million bit coins. To accommodate this limit, each bitcoin is subdivided down to eight decimal places, forming 100 million smaller units called satoshis.
In August 2013, Germany's Finance Ministry subsumed Bitcoins under the term "unit of account??, a financial instrument? - though not as e-money or a functional currency. Although it is promoted as a digital currency many people criticize bitcoin's volatile exchange rate, relatively inflexible supply, high risk of loss, and minimal use in trade.
China's got the bitcoin bug. A real estate developer in Shanghai just announced that it?s now accepting bitcoins for one of its mid-range flats in a posh Shanghai suburb. Half of the world?s daily bitcoin trading volume now comes from China.
Bitcoin has a credible future as an alternative to traditional payment methods. Momentum is coming from around the world, as amateur investors, venture capitalists and technology enthusiasts keep pumping money. The volume of transactions remains tiny, but some think this currency could eventually become as ubiquitous as email.
A tiny but growing number of stores, travel agents and online merchants are starting to accept this digital currency as a means of payment. One couple recently traveled the world using just Bitcoin - though with mixed success.