SwitchPoker.com, a small independent online poker room, became a trailblazer this week, becoming the first internet poker room to accept Bitcoin as a valid currency for both deposits and withdrawals. Bitcoin is a unique currency, as it is purely virtual and does not require financial institutions to process transactions.
Bitcoin was created in 2009 by Satoshi Nakamoto as completely virtual currency that is not backed by any government or anything tangible, such as gold or silver. They are transferred through a peer-to-peer (P2P) network without any need for a bank. In fact, all transactions and account balances are logged on the network; there is no central server or anything like that where all of the Bitcoins are counted. Each Bitcoin user’s software client (which is free and open source, by the way), keeps track of all transactions anonymously, including the creation of new Bitcoins.
Bitcoins are created through a process called Bitcoin mining, using the client software. The software uses a computer’s CPU and GPU cycles to essentially keep the networking functioning, doing things like verifying transactions and publishing them to a public “block.” This all takes a lot of computing power, so as a reward, clients who make their processing power available are rewarded with Bitcoins. Unfortunately, it takes a lot (A LOT) of processing cycles to generate even a single Bitcoin, so it is not at all profitable for the average Joe to just use his lone family desktop to generate Bitcoins. Nowadays, Bitcoin creations is typically the realm of extreme power users and companies created for the sole purpose of pumping out the currency. These entities will setup hundreds of powerful computers to run 24/7 and spit out Bitcoins.
The system is setup so that eventually no more than 21 million Bitcoins will be in existence, so as powerful computers get cheaper and cheaper, inflation will not be a factor.
Bitcoin is still not widely accepted as currency. As one might expect the majority of merchants who accept them are in the computers and technology industry, though more vendors in the creative arena are popping up. Those who wish to use Bitcoins to purchase goods or services but have never generated them can go to one of a number of exchanges, such as mtgox.com to purchase Bitcoins with real currency. Today, the exchange rate is approximately $2.30 or €1.75 for one Bitcoin. Bitcoins can be purchased for just about any nation’s currency or sold to be converted back into real money.
Because Bitcoin transactions are made on a P2P network and do not involve financial institutions or governments in any way, Bitcoin is controversial. With transactions that are completely anonymous and unregulated save for the P2P network, there is fear that Bitcoin could be used for illegal activities, such as money laundering. In fact, one popular use of Bitcoin is the Silk Road Market, an online marketplace for illicit drugs.
SwitchPoker.com is a small, independent online poker room that promotes itself as a place where people can play on their iPhone, iPad, or iPod. It does not accept players from the United States.