Jun 15, 2011

Bitcoins: The Most Dangerous Open-source Project in Existence

Adam Chromicz's picture
Adam Chromicz
Design Engineer

So said someone on the Internet... Who knows in reality, but this service does offer the promise of a distributed, open-sourced currency system that can be managed by an individual on their own machine or through a service built with features that help them perform the kinds of tasks we would expect banks to do. What if your entire financial existence could take place outside of the current banking system in a safe, open-source world. Would you take the plunge?

The basic idea is a P2P network that operates the bitcoin protocol much like the bit-torrent protocol. There are mechanisms in place to ensure that total amount of bit-coins is predictable and limited over time. Bitcoins can be traded back and forth with safeguards in place to ensure they are both real and individual.

In this system, currency is actually generated by "miners" that perform algorithmic processes to solve a cryptographic problem. When successfully solved, this creates a valid bitcoin that can then be traded for services. Money is thus generated at the rate that these puzzles can be solved by computation which is both predictable and limited to computing power.

One of the most interesting things is that this system exists right now. Here’s a good article in Wired that explains the idea.