What Are Bitcoins?

If the traders on Mt Gox understand the future, we all may soon see prices online quoted in dollars, euros and bitcoins. Robert Siegel talks about virtual currency "bitcoins" with Annie Lowrey, economy and business reporter for Slate.

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

If the traders on Mount Gox understand the future, we all may soon see prices online quoted in dollars and euros and BTC - bitcoins. What is bitcoin?

(Soundbite of video)

Unidentified Man #1: Bitcoin is the first de-centralized digital currency. Bitcoins are digital coins you can send through the Internet. Compared to other alternatives, bitcoins have a number of advantages.

SIEGEL: That's from a video at weusecoins.com. Bitcoins are bought and sold on Mount Gox, which is also a website. Think of it as an online bitcoin exchange.

If you're lost right now, I'm right there with you. And so, joining us to help us both out and explain the currency whose promoters say it will do to banking what the Internet did to publishing is Annie Lowery, economy and business reporter for Slate. Hi.

Ms. ANNIE LOWERY (Economy and Business Reporter, Slate): Thank you for having me.

SIEGEL: And first of all, how would one use bitcoins?

Ms. LOWERY: So right now, you can use bitcoins to purchase anything that people who are accepting bitcoins are selling. So there are some goods and some services that you can find on a number of bitcoin trading sites.

You can buy things like - everything from computer Web design to alpaca socks you can purchase. So there's a small community of people who accept bitcoins, and they sell a pretty wide variety of things but mostly sort of tech products right now.

SIEGEL: So, so far, it's kind of like an online digital scrip. There are no real coins. There are no physical coins that we're talking about.

Ms. LOWERY: There are no physical coins, no. Basically, in order to possess a bitcoin, you have to have a program on your computer that can help trade the bitcoins. And then it's stored on your computer in what's called a digital wallet.

SIEGEL: And bitcoins have a value. One bitcoin, according to what it says on Mount Gox today, one bitcoin is a little bit over $7.

Ms. LOWERY: Exactly, so the coins are tradable on Mount Gox. You can take dollars and purchase bitcoins. Or you can simply purchase bitcoins from anybody who has a bitcoin.

There's no central banking authority. There really is no banking system that supports this. It's entirely peer to peer.

SIEGEL: And there's also a method, too complex for us to go into here, called mining bitcoins, where by some algorithm you can get them in blocks of some predetermined size.

The whole point here is this is confidential. This is anonymous. And in theory, if I were somebody trying to launder money or sell a stolen painting, this is the perfect way to do it.

Ms. LOWERY: Indeed, there's no record of the transaction. So say that you and I were drug dealers and we wanted to exchange some money internationally. If we were to try and do that through the banking system, all sorts of red flags would go off.

There would be a record of the transaction. Our banks might stop it. You know, the authorities in either of our countries might be able to stop it and they would also be able to track it.

That's not true with bitcoins at all. It would just be me sending them to you directly, computer-to-computer. There's no record afterwards. But the transaction would indeed be secure. You would receive my funds or I would receive yours.

SIEGEL: So this is ostensibly an advantage of dealing in bitcoins. Have you yet seen something for sale online, apart from doing your story about bitcoins, have you stumbled across a site where you've seen a price quoted in bitcoins?

Ms. LOWERY: I have not.

SIEGEL: No?

Ms. LOWERY: I would not be surprised if at some point, especially again for -you know, most of the trade in bitcoins right now is among people who are fairly sophisticated sort of computer programmer types. And so I wouldn't be surprised if you started to see, you know, some very Webby companies start accepting bitcoins.

But right now, there's so much volatility in the currency that it's a kind of risky asset.

SIEGEL: Annie Lowery, thank you very much for talking with us today.

Ms. LOWERY: Thank you for having me.

SIEGEL: Annie Lowery is economy and business reporter for Slate.

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