A virtual currency, bitcoins do not rely on a central bank or financial institution. They're based on an open-source protocol and "mined" on computer servers. When the total number of bitcoins reaches 21 million, no more coins will be mined. Currently, there are about 11.7 million bitcoins in circulation, valued at about $138 each -- an amount that fluctuates.
That's a lot of virtual dough. And unlike credit cards or even Paypal transactions, bitcoins are not tied to a particular person, which makes them ideal for buying products or services that might be embarrassing or illegal.
In fact, black marketeers used bitcoins on the underground website Silk Road, which, until it was shut down by the FBI on Oct. 1, made up most of bitcoin transactions. According to the FBI, the number of bitcoins used on Silk Road between February 2011 and July 2013 came to 9.5 million, or $1.3 billion. Those sales generated some $79.8 million in commissions for the site. On the same day the site was shut down, the FBI also arrested its owner and proprietor, Ross William Ulbricht.
Silk Road is gone, but other sites take bitcoins and what you can buy with them might shock you. But buyer beware, said Sarah Mieklejohn, a graduate student at the University of California, San Diego, who conducted studies of bitcoin transactions. Bitcoins are not completely anonymous. Every bitcoin has in it the complete record of every transaction.
"We saw a lot of people deposit into their Silk Road accounts directly from [legal bitcoin exchanges] Coinbase or Mt.Gox," said Mieklejohn. "If I am law enforcement, and I can say definitively this transaction at Mt.Gox and led to this deposit into Silk Road, I can go to Mt.Gox and ask for the records."
Here are seven products people are buying with bitcoins. If you're shopping, watch your back.