By now you have probably heard the buzz about Bitcoins. If not, I will try to explain what Bitcoins are, how you can use them, where you can buy them and the things you should keep in mind if you’re making the venture into Bitcoin.
What is Bitcoin?
Bitcoin is a currency and you should think of it as a protocol, just like “HTTP”. Bitcoin was introduced in 2009 by an anonymous developer using the pseudonym “Satoshi Nakamoto”. He has since moved on to other projects, leaving this technology for the open source community; for us to enjoy and benefit from!
Currency has two things in common: something of real value (like gold) and a centralized government to control it. Bitcoin is decentralised and digital; it’s basic unit of currency is mined from code just like gold is mined from the ground.
Bitcoin economy is monitored by peer-to-peer Internet protocol; it is an encrypted string of data or hash which signify a unit of currency. All transactions are tracked by this P2P network as well. It is this collaborative digital capital brought about by the P2P network that gives Bitcoin its value.
Miners and clients
The Bitcoin comprises of a Bitcoin chain of blocks that all participants, both miners and clients, have a copy off. Just like a large “accounting ledger”, miners will check each block for uniqueness by brute force comparison to make sure no coin is reproduced or double spent and in the process verify and confirm all transactions.
Miners will perform this by solving a puzzle and the miner who solves it first will be rewarded with Bitcoins. There is a limited number of Bitcoins (21 Million), no more will be generated, therefore preventing inflation just like gold. Bitcoins are “kept” inside a wallet which can be on-line, on desktop computers, or mobile devices and even on paper – not linked to the network, which is the safest form.
Whenever a new user starts up the Bitcoin client, it generates a new Bitcoin address that is initially associated with zero Bitcoins. A user’s private keys are stored locally in a file; losing or erasing the file means that all Bitcoins associated with the addresses inside are effectively lost.
Sending Bitcoins from one address to another is done by publishing a transaction to the network, listing both the source and destination address along with the amount.
Web wallets host your Bitcoins. That means it is possible for them to lose your Bitcoins following any incident on their side. As of today, no web wallet service provides enough insurance to be used to store value like a bank. This will probably change in the future.
How do I get Bitcoins?
You can buy Bitcoins at Bitcoin Exchanges. A detailed list can be found here. You can also find local people that would be willing to sell you Bitcoins. Here is a site that can get you connected to someone based in your current location.
What can you buy with Bitcoins?
Since its inception Bitcoin has been used for illegal activities like purchasing guns and drugs (just like cash!), but this is just an example of what it can be used for due to is anonymity.
If you want to know even more about Bitcoin, make sure to check this page.