There are 10,952,975 Bitcoins in circulation. (With a digital currency you can be specific.) Bitcoin isn’t about to replace hard currency—with a market cap of $864 million—but it’s bigger than anyone expected. And many people will tell you that the emergence of a virtual global money supply beyond the reach and control of any government is very real and that it’s time we take it seriously. As long as the Internet remains turned on, Bitcoin will be there—to its adherents, it’s the Platonic currency.
A Bitcoin’s not so much a thing as an understanding, a balance in a decentralized general ledger, or “account log.” Bitcoins are created as the side effect of a great deal of meaningless computational work. That is, the computer could be working on processing images, or doing something else with its time, but instead it’s being used to “mine” Bitcoins—searching for mathematical needles in a networked haystack. Once the needle is found, a “block” of Bitcoins is born. Bitcoins live in a bit of software known as your “wallet.”
How did they get there? Perhaps you minted them by mining, or bought them on an exchange, or received them as part of a barter transaction. Once you have Bitcoins, you want to buy something. How do you spend them? Clicking around your wallet app, you set up a payment and put in the Bitcoin address of the recipient. A few minutes later, after the peer-to-peer network has authorized the transaction as legitimate, the recipient’s wallet, wherever it is, will show that you’ve paid up.
Bitcoins are not pegged to anything, and there are no regulations. It’s a supercomputer-size chore to counterfeit. The key thing to understand is that there’s no bank, no Federal Reserve, in the middle (can you say, "Screw the Fed." ;). It’s not unlike an exchange-traded fund—a mix of non-U.S. currencies—designed as a hedge against the dollar. Bitcoin is a hedge against the entire global currency system. And no exchange is needed, unless you want to convert your Bitcoin into an actual hard currency.