Imagine using virtual currency- never having to go to the bank, never having to pay credit companies, and never having an organization controlling how money is spent. This concept exists in a relatively new form of currency called “bitcoins”.

Created in 2009, bitcoins are a form of online currency based on open source software that does not have any central government involvement. According to bitcoinme.com, bitcoins are based entirely on supply and demand, unlike U.S. currency, which is backed by the federal government.

The currency can be attained by selling an item on the bitcoin market in exchange for bitcoins. The resulting currency can be used on any website that accepts bitcoins, such as SpendBitcoins.com, through which users can purchase products from Amazon and Barnes and Noble.

There are only 21 million bitcoins in existence at any one time. However, the currency can be divided up into infinitely smaller values. As of September 28, the bitcoin dollar exchange rate was valued at $4.79.

“People expect that if [bitcoins are] used […], the value will continue to go up because no one can make more of them,” said Bruce Wagner, host of the daily bitcoin talk show, in a phone interview with The Winged Post. “Any other currency throughout the history of mankind has been abused eventually.”

The bitcoin transaction system is anonymous; users can buy products without having to reveal their identity. Though no personal information is revealed, their purchases are recorded and made public by bitcoin addresses, which are issued to each individual user.

“I think it’s convenient because it’s not so much of a hassle to have to keep track of bills and repay taxes on time. In addition, an online account of exactly how many [have] been spent is organized,” Shreya Vemuri (11) said.

The recent popularity of bitcoins can be attributed to the fact that they are free of charge and easy to use. Developers write that the security of bitcoins surpasses that of existing online banking systems, claiming that it is absolutely unhackable and unbreakable because the currency is not controlled by any organization other than the actual users. Bitcoins can also be exchanged for regular physical currency at any time, in person, in the mail, or as a direct deposit into a bank account.

However, bitcoins do have potential defects. Statistics show that the value of the bitcoin fluctuates often, causing a seemingly unstable currency. This past June alone, the value of the bitcoin dropped 45 percent in two days. In October of 2010, the bitcoin was worth $0.06, but in a span of eight months, that number jumped to about $20.00.

“If you replace real money with [bitcoins], you run into problems like [bitcoins] going down in value while the dollar stays up, except that the bitcoins are more liable to fail than the dollar because it’s like inventing a new currency altogether. I don’t think it’s a good idea,” Shreyas Parthasarathy (10) said.

The fact that bitcoins are such a new currency adds to the fact that they are unstable in value. Until bitcoins reach a constant usership, the value will continue to change often.

“If bitcoin currency circulation ever became really stable, then the value to the dollar would rise continuously. In that case, eventually it would reach such a point that I think counterfeiters would have an incentive to try to counterfeit it,” economics teacher Samuel Lepler said.  “I’m wary of it for that reason.”

Additionally, payments and transactions with bitcoins are irreversible; the wavering cycles and the possibility of illegal proceedings contribute to the potential unreliability of the currency.

“Personally, I wouldn’t use bitcoins because I don’t trust [their] value or the concept in general,” Arden Hu (9) said. “I think some of the disadvantages of the bitcoin enterprise would be that, because it’s private and not impacted by other organizations, you don’t know whether it’s actually secure and safe.”

Although bitcoins facilitate transactions because they are used in a similar manner as emails, the concept of online currency is still new and has some uncertainties that may potentially affect the growth of bitcoins.

This piece was originally published in the pages of The Winged Post on Sept. 27, 2011.