BITCOIN virtual currency

Bitcoins are created, or mined, when computers complete a complicated mathematical problem. Many individuals have pooled their computer power to ensure this mathematical work is completed more quickly.

The BBC has reported that the Bitcoin virtual currency lost half its value on Wednesday because of a panic sell-off. 

From a high of $260 (£169) for each Bitcoin, the value dropped to about $130 (£84) in just six hours. The selling frenzy began as Bitcoin's main exchange, MTGox, struggled to keep up with the volume of trade in the virtual currency. MTGox said it was working hard to improve the exchange to avoid future trading problems.

HISTORY

Bitcoin (BTC) is an online commodity that is based on an open-source, peer-to-peer encryption protocol first described in 2009 by apseudonymous developer Satoshi Nakamoto. Bitcoin creation and transfer is accomplished on an Internet-based network and is not managed by any central authority. The creation of new bitcoins is automated and may be accomplished by servers, called bitcoin minersthat confirm bitcoin creation by adding codes to a decentralized, log which is updated and archived periodically. Each bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.

Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution. Interested parties can authenticate the ownership of bitcoin balances by using dedicated servers (the bitcoin miners) to authenticate the bitcoin transaction log using a public-key encryption scheme. Each 10-minute portion or "block" of the transaction log also allows for a predetermined number of new bitcoins to be awarded to miners based on computational data added to the log and confirmed by other miners. The creation of a new bitcoin is thus a special case of a transaction in which the new bitcoin deemed issued in exchange for solving a computationally intensive encryption problem. The number of newly created bitcoins per period depends on how long the network has been running. Currently, 25 new bitcoins are generated with every 10-minute block. This will be halved to 12.5 BTC during the year 2017 and halved continuously every 4 years after until a hard limit of 21 million bitcoins is reached during the year 2140.

Bitcoin is accepted in trade by various merchants and individuals in many parts of the world. Although bitcoin was initially promoted as a virtual currency, many commentators currently reject that claim due to bitcoin's volatile market value, relatively inflexible supply, and minimal use in trade.

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