Bit of a mystery, a whole lot of interest

Even as it exists in an enigmatic world of digital vaults, the bitcoin has caught the imagination of the world

There was sharp interest across the globe when three teenagers who run a company called Bitcoiniacs installed an automated telling machine, or ATM, in a coffee shop in Vancouver. The media's interest was not misplaced - the ATM saw a large number of transactions of over Can$100,000 in less than a week. The financial exchanges over the ATM involved bitcoins (BTCs).

Bitcoins? What on earth are these? Well, actually bitcoins don't exist on earth, and that is probably the reason why the ATM did so well. Curiosity kills the capitalist mind as well as it does the cat. Bitcoiniacs reported that a majority of the people queuing up at the ATM are first-time bitcoin flirts, those who had vaguely heard of bitcoins and had congregated at the coffee shop to find out what they are all about.

Well, you can enter the ATM and either send bitcoins, if you have some, to an address or buy the digital currency for Canadian dollars if you are a newbie. Now since the whole bitcoin business is not as simple as dollars and cents, the ATM has special functions. It can, in addition to crediting your bitcoins to someone else's ledger as, say, payment for a purchase, also allow you to create a digital signature and a new address or a wallet where your newly bought bitcoins can be stashed. Either transaction requires you to have your palm scanned as a biometric measure to ensure the security of your deal.

But you will not hear a metallic clang of coins being spewed out into your hands. Yes, the ATM swallows the notes you offer in returns for bitcoins, but in the esoteric world of digital currencies, bitcoins are, well, literally dematerialised. There is no physical form for bitcoins, they only exist as figures in ledgers across a global network of computers.

"People have trouble grasping the 'mining' and cryptography and peer-to-peer network stuff, but an ATM that you put money into that shoots a Bitcoin address out? That's easily grasped," wrote Forbes about the instant popularity of the Vancouver ATM. What the currency machine does is to give bitcoins a sort of a real feel. It makes you feel that you are dealing with real-world paper currency.

Perhaps a sense of the everyday is important because bitcoins operate in a realm of bits and bytes that can be challenging for most people. Bitcoins are digital currency, transacted peer to peer and suitably protected by cryptography. Exchanges require the dealing parties to use two keys, a private and a public one. What is interesting is that a bitcoin can never be used more than once.

So the process continually creates and destroys value. In other words, if you want to purchase something with a bitcoin, you must prove you have the required bitcoin value by demonstrating how the bitcoin got into your ledger. Once that is determined, you can exchange your value for a product. Simultaneously, your earlier inflow gets invalidated for any further transaction, thus eliminating any fraudulent double use of the same bitcoin value (incidentally, a bitcoin can be transacted at eight decimal points of its value, or 0.00000001 BTC).

This system leads to a humongous amount of data being created and exhibited to potential buyers and sellers. But it is in this data system too that the birth of new bitcoins takes place. A group of "miners", or networked data handlers, create what are called "blocks" of transactions that store all information related to past transactions. Block creators solve math puzzles in the process and are rewarded with bitcoins. At the moment, the prize is 25 new bitcoins per block.

Bitcoins are being used increasingly in mainline commercial retails. They are useful because the currency is unregulated by any Central bank or government and can easily bypass forex rules. In countries like Iran, with its strict currency laws, bitcoins allow easier access to contraband goods. It is often used for money laundering because being peer-to-peer and protected by cryptography, there is a large measure of anonymity. Because of these, the bitcoin is coveted. It has been trading around $150, an indication of its current value, which has risen from around $10 at the beginning of 2013. It is estimated there are 12 million bitcoins in circulation with a total value of $1.5 billion.