What exactly is Bitcoin?

I keep seeing the word Bitcoin mentioned and now it is even being advertised at SBB ticket machines. I still do not get what the stuff is. Is it basically a privately invented currency like the airline miles, REKA money or community currencies that have been around for decades? Why is there so much hype about this?

The examples you mentioned come pretty close. Bitcoin is a “virtual currency”, just like airline miles and REKA money. The main difference is that it is generated by an interest-group rather than a company or organization. Bitcoin is created as payment for people who provide the internet servers to power the network. The more computing power you make available, the more Bitcoin you earn. In that way, Bitcoin is much like a community currency because, at least initially, you have to provide a service in order to get it.

Because Bitcoin is only generated or “mined” as more computing power becomes available, there are physical limits on the amount of Bitcoin which can be generated (unlike airline miles, which are created on demand). As with community currencies, the only real value of Bitcoin is in people’s willingness to accept it in exchange for genuine currency or services. There is no economy backing this virtual currency.

The hype around Bitcoin lies in two factors: Firstly, just like airline miles or hotel loyalty points, Bitcoin can (currently) be transferred across borders without limitations and without the need for financial services providers, making it a cheap and practical medium for transferring wealth across borders.

Secondly, the “blockchain” technology which powers Bitcoin records every transaction which has been made with each specific Bitcoin. This is roughly the equivalent of being able to read every fingerprint on a banknote dating back to its creation. Although Bitcoin can currently be mined and spent anonymously, the technology it is built on could eventually be used to impose full control over financial transactions.

The biggest advantage of bitcoin is that it runs independently of any one entity. There is no Visa or Mastercard which can block your account at will. There is no bank which can turn over your savings to a government during an economic crisis. As long as there are any computers on the network, your transaction will go through. As long as you and only you know the private key to your wallet, your bitcoin is not going anywhere without your approval.

Another benefit is that bitcoin can be transferred online (kind of like a Paypal transfer or credit card transaction) or physically (like cash) using hardware wallets like Opendime.

Bitcoin is effectively a community currency, but unlike REKA and most other community currencies, it isn't backed by a company or association. It runs autonomously.