As its been in the news more and more recently…
An article about the unchecked nature of a fledgling digital currency (Crypto-currency) that is not currently categorised by the Fed, so it does not yet have the same protection under the law as other forms of currency. Yet many places are beginning to accept it for goods and services, Virgin Galactic is one (you can buy your seat on their space flight with bitcoin).
A decentralized digital currency that has seen a fair number of thefts in recent months, one of the biggest being from one of the online wallet and trading exchange to the tune of more than $1 million.
Bitcoins can be purchased like any other currency on various exchanges including MtGox, or they can be mined. Mining bitcoin requires an investment in custom ASIC hardware to be able to perform enough Hashing calculations to find the next block in cryptographic algorithm. In recent months the level of processing power used for mining has increased significantly. The algorithm is self balancing, so the more processing thrown at it, the harder the complexity of the calculations that must be solved.
There are few currencies in the world that are “full-standard” or backed by a store of precious metal to the full value in circulation. England used to have the silver standard – hence pounds sterling, USA had the gold standard (Fort Knox gold repository). Digital currencies have no backing standard but are based on a limited supply (Bitcoin has a limit of 21 million. see this wiki for more details.
Bitcoin has seen a more than 10 fold increase in value this year alone. From around $100 to around $1000 in recent weeks.