Have you ever heard of bitcoins? Chances are you’ve probably come across the word over the Internet. In a nutshell, Bitcoin (frequently referred as BTC) is digital currency and like all currencies it represents value and can be used to purchase goods or services.
Since they exist in the digital world and are not issued by a state and are not regulated, it may seem that bitcoins challenge the very concept of money. It’s important to remember however, that money in itself is a social construct. The money that we use now has value because it has been declared as legal tender by the government, which represents the will of the collective. The question is not whether Bitcoin is money, but whether society as a whole will accept it as a form of currency.
What are bitcoins?
Introduced in January 2009, the Bitcoin network was the first decentralized digital currency, working as digital coins you can send through the Internet. It is an online payment system allowing you to purchase virtually anything – provided, of course, that the merchants you’re purchasing from accept bitcoins (and many online already do using something like www.coinbase.com). Note that you can send portions of a BTC, it doesn’t need to be whole numbers.
There are a finite amount of BTC that will be released into circulation (21 Million) and there are around 12 Million BTC currently in circulation with an approximate market cap of $10 Billion USD. Interestingly BTC peaked over $1,000 USD each (per full BTC) in December 2013.
Compared to regular money, bitcoins have a number of advantages:
- No middleman. It allows person-to-person transfers without having to go through a bank or a clearinghouse.
- Minimal transaction fees.
- Bitcoins can be used in all countries.
- Your account (wallet) can’t be frozen.
- Since its open-source, there’s no central authority that will set conditions or limits.
How do I manage my bitcoins?
Your bitcoins are stored in what’s called a digital wallet, which can be on your computer, mobile device, or in the cloud (e.g. www.blockchain.info). When you send bitcoins it’s just like sending an e-mail. There are also currency exchanges that let you exchange bitcoins for dollars, euros, etc., and vice versa. (e.g. okcoin.com, btcchina.com, bitfinex.com, bitstamp.net, cavirtex.com). Some people even buy and sell them privately through localbitcoins.com
Who controls them?
No one! The entire system is decentralized. However individuals called miners help secure the bitcoin network. By verifying transactions they are rewarded with new bitcoins. Verified transactions are then logged in a transparent public ledger. Anybody can be a miner and earn money from mining by simply allowing the bitcoin network to process information using their computer (these days they use very special single-purpose computers as hardware miners, one of the more popular at the moment being the AntMiner). Bitcoin transactions rely on peer-to-peer technology to function and to act as a check and balance to keep the system going by constantly strengthening the public transaction ledger.
To learn more about bitcoins and how you can get started, you may visit https://bitcoin.org/en/ where you can also watch an introductory video.