Peer-to-peer currency takes banks out of the picture

A few months ago we looked at Irish CurrencyFair, a peer-to-peer site that effectively removes banks and other middlemen from currency exchange. Pushing the peer-to-peer concept even further into the world of finance, Bitcoin is a collectively managed and open-source digital currency that’s completely independent of any central authority. Now in beta, Bitcoin bills itself as “the first digital currency that is completely distributed.” In essence, that means that it’s managed collectively by a global network of users, so no bank or payment processor is required between buyers and sellers in any transaction. Users begin with Bitcoin by downloading its client program for Linux, Mac or Windows, thereby creating a digital wallet and associated Bitcoin address for themselves. Next, very small quantities of Bitcoins are available for free from the Bitcoin faucet, but to get larger ones, users can visit various currency exchanges and sites. They can also accept Bitcoins as payments for goods and services. Either way, once they have Bitcoins — abbreviated “BTC” — users can spend them at various participating online merchants for a wide variety of goods and services. It’s free for merchants to accept Bitcoins, and there are no chargebacks or fees. Currently, there is no charge for processing Bitcoin transactions, but eventually a small fee of about one bitcent will be charged every transaction to one of many competing Bitcoin “miners,” who create Bitcoins in a controlled way by running a dedicated program. A video on YouTube explains the Bitcoin concept. Bitcoins have rapidly appreciated in value over the past few months, going from USD 0.50 at the end of January to more than USD 1 in early February. Transactions worth the equivalent of some USD 30,000 in Bitcoins now take place every day, according to a report in Forbes. Is it any wonder? Given the global financial crisis, consumers have good reason to seek more control over the financial system. Bruce Wagner, organizer of New York’s Bitcoin developer’s meet-up, put it nicely in Forbes: “No banker can control it. No evil dictator tyrant can print zillions and destroy the value.” One to get your business involved in? (Related: P2P lending arrives down under — Peer-to-peer student loans.)