Hear about the $500,000 heist of online currency this month? Not only was the digital dough stolen, the theft was followed by a major hack at an exchange website that led to a precipitous drop in the currency’s actual value.
Bitcoin, “the first decentralized digital currency,” suffered a personal data breach at the largest Bitcoin-to-real-money exchange, Mt. Gox, that caused values to drop from $17 to $0.01 per Bitcoin credit. The news was coupled with the Electronic Frontier Foundation’s decision to stop accepting donations using the virtual currency, partially because, “We don’t fully understand the complex legal issues involved with creating a new currency system.”
If Bitcoin is a virtual currency, how and why can it have value — let alone lose value — and be stolen? And why should you — let alone anyone — care? If censorship, illegal drugs and hacker heists pique your interest, here’s what you need to know.
Is this whole virtual currency thing new?
Hardly. Bitcoin — both the virtual money and the open source software it requires — came out in 2009. But virtual currency has long been used (in one for or another) in massively multiplayer online role-playing games (MMORPGs) such as World of Warcraft to simple social network games like FarmVille.
Bitcoin has real currency value outside the virtual environment, and on occasion, has a value several times higher than the U.S. dollar, the British pound, and the Euro.
So, how is Bitcoin virtual money “made?”
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