What is Bitcoin?
Bitcoin is a type of virtual currency. Each unit of the virtual currency is nothing more than an entry on a digital ledger, just as most dollars and cents exist only as entries on a bank’s digital ledger. The price of a Bitcoin is set on the open market, generally on exchanges where people offer to buy and sell Bitcoin, similar to the way that a stock’s price is set.
Bitcoins, unlikely normal currencies, are kept on a ledger that is maintained and updated by any user of Bitcoin who uses them. The constantly updated ledger is kept on the computers of all the users — just as Wikipedia entries are written and kept current by the encyclopedia’s users rather than by any central authority. The work maintaining Bitcoin’s ledger is done according to rules that are established by the Bitcoin software.
It is the communally maintained ledger on which all Bitcoin accounts and transactions are recorded — known as the blockchain — that makes the currency so different from existing ones.
Because there is no central authority in Bitcoin — just the network of users keeping the records — there is no one to shut down accounts or demand personal information from Bitcoin users. Anyone can open an account and spend whatever Bitcoins they have as long as they have the password — or secret key — for their account.
Where do Bitcoins come from?
From the moment the Bitcoin network started operating in 2009, a new bundle of Bitcoins — initially 50 — was released every 10 minutes or so, essentially for free, to one of the computers helping to update and maintain the blockchain ledger.
Computers on the network take part in a sort of computational race to win these new coins, a process that came to be called Bitcoin mining. This giveaway provided an incentive for people to join and support the network with their computers. New coins will be released in this way until there are 21 million in the world (currently scheduled to happen sometime in 2140).
Once a user wins a new bundle of Bitcoins he or she can divide them up in any way — up to eight decimal points — and distribute them to anyone else with a Bitcoin address. Initially, people sent their Bitcoins to friends for free. Now, there are exchanges on which people offer to buy and sell Bitcoins.
How do you spend a Bitcoin?
Anyone with a Bitcoin address, which is similar to an email address, can send and receive Bitcoins from anyone else with a Bitcoin address. Creating a Bitcoin address is free. Each address comes with a private key, a sophisticated password, that provides access to the coins in the address.
There are thousands of merchants that now accept Bitcoin payments online. These companies will generally provide a Bitcoin address where money can be sent in order to complete a transaction. For the merchants, Bitcoin is preferable to credit-card payments because the merchant doesn’t have to pay a fee to a credit-card company.
Is Bitcoin a good system to use?
Bitcoin can be used to send funds quickly and cheaply around the world, without requiring a bank account. Slowly, there is increasing interest in using the Bitcoin network as a payment system for different purposes. One often-discussed use is as way for immigrants to send remittances more cheaply to family members overseas who don’t have bank accounts or government identity cards.
Other developers have looked to use Bitcoin for very small online payments, of a few cents, which are generally not possible in the existing financial system because of the minimum payments required for credit-card transactions.
More recently, financial institutions have grown interested in the idea that the Bitcoin network — and its ledger, the blockchain — allows for direct online transactions of all sorts, even those that don’t involve Bitcoins. Banks and financial firms are now looking at using the blockchain to allow for cheaper, faster stock and bond trades.
If you want to stay updated, we recommend you bookmark these top 5 sites & use them to keep track of the news in the Bitcoin industry.
CCN’s greatest strength is its business-related bitcoin news. They feature the latest stories about mergers, price changes, and new product offerings. You can also find the other bitcoin news, like projections about the crisis in Greece and human interest stories, so we strongly recommend a bookmark.
For the especially avid news consumers out there, News BTC might be what you are looking for. They post enormous volumes of content every day on nearly every conceivable topic. They also devote a section of their site to startups and venture capital, which should appeal to a lot of readers.
Visit CoinTelegraph for alternate news. They definitely cover the day’s news, but their strong suit is their long-form feature. Check them out if you want to read expert opinions about encrypted chat communications, digital Magna Cartas, or great artwork depicting sisyphus pushing a debt boulder up a hill.
Bitcoinist is a good addition to your daily read. We particularly like their interviews section, which features conversations with bitcoin industry leaders. Definitely worth your time.