Talks About Tech Weekly 094: Online Currencies Explained

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On this episode we talk about the Oscars 2014, online currencies and more.

Online Currencies Explained
BitCoin and other online currencies are becoming very popular. But how do these virtual currencies work? How could virtual money be worth anything?

BitCoin is the world’s first decentralised currency. This means that it does not have a central organisation or country running it. You can buy, sell and use BitCoins just like any other currency. The only difference is that it’s completely virtual on the internet.

Anyone can set up a BitCoin account for free. Everyone gets there own BitCoin wallet and just like any currency its value goes up and down all the time. In order to keep the currency running BitCoins have to be created and taken out of circulation everyday. BitCoins are created by a process called mining. Miners verify and record payments in exchange for newly created BitCoins.

Anyone can become a BitCoin miner. You need a powerful computer and advanced computer knowledge. Professional miners use GPU based computers. GPU’s can process information much faster than standard CPU’s.

Integral to BitCoin is a public database and sequential records of all transactions, known as the block chain. The block chain records current BitCoin ownership as well as at all points in the past. By keeping a record of all transactions, the block chain prevents a problem particular to digital money, double-spending.

Miners have to solve a complex mathematical equation called a hash in order to verify each transaction as valid. When they solve the hash they add it to the block chain. BitCoin payment processing fees are optional and generally substantially lower than those of credit cards or money transfers which is great if you want to be a BitCoin merchant. Currently, doing the work of payment processing is rewarded with newly created BitCoins. At the moment it’s 25 BitCoins per block which is the equivalent of about €11,000.

I hope that this brief explanation of BitCoin has helped you to understand how online currencies work a little better.