While the U.S. dollar is still the center of all American commerce, a new, virtual currency has jumped to headlines across the nation.
At the beginning of last week, U.S. federal law enforcement shut down Silk Road, an online marketplace where users could buy and sell drugs anonymously. Silk Road vendors accepted only one form currency—bitcoin.
The bust of Silk Road catapulted the online currency into the spotlight and left many wondering how it all works.
Created in 2008 by a man known as Satoshi Nakamoto—though that may not be his name—bitcoin works as an online-only currency, one without any central governing or regulating agency, such as the Federal Reserve, guiding its value.
Bitcoins are discovered, or “mined”, by computers solving mathematical problems. In the beginning, the problems were relatively easy to solve, but as the years went on and more bitcoins were “mined,” the problems grew exponentially difficult by design, making the currency scarcer and more valuable.
Anyone can buy bitcoins through online marketplaces and the emerging currency can be used in an increasing number of businesses, including traditional brick-and-mortar stores here in Austin.
"We've been using bitcoin for a little more than a year now," Ryan Dixon, manager of Brave New Books, said.
Brave New Books isn't alone when it comes to this new form of digital trade. Capitol Coins and Bullion shop keeper James Pattani convinced his boss to use bitcoin in house.
"Turns out it's really, really easy to set up merchant accounts," Pattani said.
According to financial analysts, the bitcoin economy is worth more than $1.4 billion and despite unpredictable value and the Silk Road setback, it doesn’t seem to be slowing.
"Everything seems to be moving towards online currency—whether it's bitcoin or other forms," patent attorney Gene Pierson said.
Daily trade in bitcoin is estimated to exceed 45 million dollars.