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Is there are any way to use bitcoin or alternative crypto-currency in local network? I have small home network without internet and have an idea to have a local currency to encourage the children.

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You can set up a local Bitcoin testnet with the Bitcoin-Qt client and some relatively simple configuration. Note that you will need a miner to be processing transactions when the the testnet is in use. More information is available at: https://en.bitcoin.it/wiki/Testnet

Jason Dreyzehner
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  • The testnet Bitcoin wiki page references a "Testnet in a box" available here: http://sourceforge.net/projects/bitcoin/files/Bitcoin/testnet-in-a-box/ – Jason Dreyzehner Jul 09 '13 at 15:14
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If you are not tied to bitcoin you could also look at defining your own familly currency with an Open-Transactions server (advanced difficulty - https://github.com/FellowTraveler/Open-Transactions/wiki) or with Ripple (intermediate difficulty - https://ripple.com)

Scrybe
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