John Lennon wanted us to imagine a world with no countries; when
the European Union started happening in earnest, one of the first
things they did was create the Euro. Having a common currency is a
great way to bring down geographical barriers and create a shared
economy. And with audacity that feels like it’s drawn straight out
of one of William Gibson‘s cyberpunk novels, that’s what Bitcoin
sets out to do.

Bitcoin works like a peer-to-peer file-sharing application, only
instead of transferring files, the nodes on the network transfer
data about financial transactions. Each node on the Bitcoin network
has its own unique identifier. To send someone money, simple use
the client to specify an amount, paste in their ID, and the money
is sent on its way.

Of course, before you can do that, you need to get some Bitcoins
to send. This isn’t monopoly money: There are only so many Bitcoins
in existence, and they have value that can be measured in more
common currency (US Dollars, for example). The Bitcoin economy is
still forming, so Bitcoins are being slowly created, or “mined” in
Bitcoin parlance. Since one of Bitcoin’s key tenets is that there
should be no central issuing authority, the clients are doing the
mining, effectively creating new money out of thin air.

At first glance, that seems very much off–kind of like printing
your own Dollar bills at home. But mining new Bitcoins is a
temporary affair. The rate of mining is hard-coded into the
application, and will slowly taper off until at last, no more coins
will be mined and the system will stabilize at 21 million
Bitcoins.

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