The Web's Secret Cash

By Lyons, Dan | Newsweek, June 27, 2011 | Go to article overview

The Web's Secret Cash


Lyons, Dan, Newsweek


Byline: Dan Lyons

A novel version of money is sprouting online, letting people shop in complete anonymity.

What if people could use the Internet to create a new kind of money, one that didn't involve governments and central banks and could be used anonymously, like cash? That is the idea behind Bitcoin, a virtual currency that has caught the attention of computer geeks, financial speculators, and drug dealers. For the first time, you can buy anything online without giving your credit-card number or bank-account information--leaving no trace at all.

Hundreds of merchants accept Bitcoins for things like books, computers, and professional services. The currency trades on a handful of Bitcoin exchanges, where the price of a Bitcoin fluctuates based on demand. Not long ago a single Bitcoin sold for less than a dollar, but in recent months the price climbed to $8, then to $20, then above $30, before falling back to $18, the current level.

What exactly are you buying? A Bitcoin is basically just a little bit of encrypted code that can be zipped over the Internet and stored in a digital wallet. The concept was proposed by a mysterious hacker named Satoshi Nakamoto (no one knows who he is, and the name is believed to be a pseudonym), who published a white paper describing a way in which computers connected over the Internet could be used to create an unregulated "cryptocurrency."

New York Sen. Charles Schumer recently called Bitcoin "an online form of money laundering," after learning about an online warehouse called Silk Road where sellers advertise an astounding array of illegal wares--marijuana, hashish, LSD, ecstasy, cocaine, heroin--and where the only currency accepted is the Bitcoin. …

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