In no way are Bitcoins the only cryptocurrency floating around on the Internet; in fact, there are dozens of other cyber-currencies, like Namecoin to Hashcoin, even Beertoken. However, Bitcoins are the most frequently used form of this new digital money, so we'll focus on it and how to handle accounting functions that involve them.
What are Bitcoins?
Bitcoins are electronic currency -- digital public money -- and are created using complex mathematical equations, while being policed by millions of users called 'miners'. Basically, they are long strings of computer code that have a cash value, and completely bypass traditional banks. They are very controversial because they are unregulated and banks, governments and law enforcement agencies have not figured out what to do about them.
Though Bitcoins and other cyber-currencies are used worldwide, some of the guidelines that the United States government put in place are useful. At this point, Bitcoins are passed from one online wallet to another, and stored on a computer, smartphone, or in the cloud. Since banks are not needed to move the money or to store it, they are more like gold nuggets than real money. They have an assigned value at the time of purchase; for instance, as we were writing this, the price is about $403 per Bitcoin, down considerably in the last few days