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.
48 thoughts on “An Introduction to Bitcoins (BTC)”
I’m a great lover of Bitcoins. The best thing about BTC is the low transaction fees and no regional restrictions. I also like the anonymity and the fact that I can do peer-to-peer transfers with no restrictions whatsoever. I do not own a credit card at the moment, so purchasing digital stuff can be a headache for me. In that case, Bitcoin is a life-saver. I go to LocalBitcoins.com and bank transfer a trusted seller some money and he/she sends me the money in BTC at an acceptable rate and I use that BTC to get my purchase done. I dream for a future where Bitcoin would be readily accepted everywhere.
Now I get why Bitcoins aren’t really getting out much to the public. If this gets to be the mainstream currency, banks would just go nuts and every superpower will try to get their hands in control. Thanks for this read, really informative with just a few words.
Personally I see living in a world where crypto-currencies have replaced regular money as a far reality. Banks can be sure of their long hegemony for plenty of time in the future.
What would be quite interesting to see is a mixture of featured means of payment in normal retail sites. This way you can choose to pay in cash from the banking system or bitcoin. This would rock.
I am very interested in Bitcoins, I have been since they come into circulation. I keep meaning to buy a few fractions just to see how it works exactly. I am still not sure exactly which wallet and transaction sites to use safely, so I need to do a little more research.
I highly recommend using http://www.BlockChain.info as your first wallet (you can have many different wallets if you want).
Thanks very much. I have asked people before with no response, I was not expecting an answer, you have made my day.
Bitcoins are becoming very popular now days. I have read that there is a pizza place that now accepts them as a payment option online. I think that they are great. They give people more options to payment methods.
I appreciate the intro to bitcoins 101 David. I’ve certainly heard about it often and at times considered a small investment in it, but realistically never put the effort into learning much about it — which makes me sound terrible with the thought of investing. That said, I’m glad you took the time to make an easy read so that most of us could get a basic understanding of it all. You never know how popular it may get in the future…
I am on your level, richie. I have read about this for long time and nothing has ever motivated me to enter the bitcoin market. I think most people are the same, they stick to things they are already familiar with and do not venture into new territory.
I’ve been wanting to understand Bitcoin more, and this is a very helpful introduction. I think I understand more than I knew before, thanks!
Bitcoins are also a great method of making money if you can manage to ride the market just like you would the Stock Market or any other commodities investing. Additionally there are advanced things such as Bitcoin Mining, which require specialized hardware, but can reap in substantial amounts of Bitcoin and generate a fairly decent side income for yourself.
Bitcoins are unpredictable in my opinion. It is a dangerous game if you want to invest on it, the value of Bitcoins are fluctuating in the crypto currency market but personally i would like to see how would Bitcoins will perform in this coming years.
I had a friend telling me to invest in Bitcoin a few years ago, but I didn’t really understand it. I still don’t fully understand the workings of it if I’m honest, but I would have made a pile of money if I’d listened to my friend!
It does seem a bit risky as an investment to me. Anything that rises so quickly can fall even quicker! But maybe I’m wrong. All the best.
That happened to me too! I almost bought two bitcoins, which at that time (September 2013) would have costed me around $25o. Two months later they were worth ten times more… Even today there are worth 4 times that.
It is a really risky investment! Even though there is less fluctuation nowadays, the spread is still rather high (Difference between buying and selling, both on the marketplaces and on investment platforms). And there’s no telling what will happen to the Bitcoin. There’s a good chance, however, that it’ll eventually be a regular part of our society and will stand proudly next to the other payment processors.
I really appreciate the explanation of Bit Coins. I have been hearing about them quite a bit for the past year but wasn’t entirely sure what they are. The only thing I would be worried about would be someone hacking me and stealing them. (Is that possible?)
Most reputable Bitcoin wallet service providers will require you to write down a certain code or mnemonic which only you will have access to and is not stored anywhere on their system in order to create your account. You then use this mnemonic to create a regular type of login, and many offer the ability to create a two-part account of sorts where you can VIEW your Bitcoin with the “regular” login, but then can only MOVE your Bitcoin after you enter in your special mnemonic. Additionally, please recognize that Bitcoin is stored as data on your device or rarely an account online, so if you keep your Bitcoin wallet only on your phone and then destroy it, it’s very possible there is no way to recover your Bitcoin again.
Thanks for this overview. I wish I had heard about Bitcoins before they were worth so much! Crypto currencies are very interesting to me and I’d like to get more into them. I have a few bitcoin tips (only a few dollars) someone gave me the other day so I’ve been reading about it ever since. I’m definitely going to invest a little bit in it soon.
This is really interesting. It made me think of how a digital currency such as Bitcoin could gradually transform the banking system by removing the intermediaries and allowing for more direct financial interactions. I like the concept, but I see the risk involved as very high, and I suppose I’m not the only one who shares this view. If there could be a way to make the currency more stable I’m sure tons of people would give it a try.
I’ve been using Bitcoin via Coinbase for a while now, although pretty infrequently. I really like it’s concept, but it’s a shame that so few places seem to actually support it. I understand it being an online only currency, but currently it’s “online at these few places”. It’d be great if something major like PayPal added support for it, so that they could be conveniently spent.
Also, not heard of LocalBitcoins.com before – looks like a pretty interesting site to buy some coins from. Thanks!
Very nice post. I’ve briefly been following bitcoins, ever since they were worth nothing. A person I knew on the internet is very big on them and invested early on. Part of me wishes I did but not knowing enough, plus the fact of how unstable cryptocurrencies can be dissuaded me. Seeing how widespread it has become is truly interesting.
However, one thing that worries me is bitcoin miners. I don’t know if you’re familiar with them, but more and more software that’s infected can contain bitcoin miners, which will use up many of your resources in the background to mine bitcoins for the infectors personal gain.
Hmmm… Although this does look interesting, i’m a wee bit paranoid, i’m not sure how money that’s decentralised can work. There are many apprehension that come to mind, like What happens to these coins if there’s a change in the economy, for eg inflation? And if it’s so easy to store them anywhere, what are the chances of not getting hacked?
Mining for bit coins has become extremely hard now due to strenuous GPU usage. I once tried to mine for bit coins but my computer became extremely hot also I made an abysmal amount from it. But maybe now it’s smarter to invest in buying bit coins and letting the value rise instead of mining for them?
What’s your opinion on this?
Is this why Bitcoins are considered so secure? Because they are not a centralized currancy? This subject has always interested me, as I never really understood this ability of Bitcoin. This article was very clarifying in that aspect. Bitcoins are a great reflection of how far our society has come in regards to technology. Currency has always been a symbol of our society, from the primitive bartering to the modern day coins and bills. Bitcoin is a new era, where currency is no longer tangible.
Bitcoins don’t really have the appeal they did before Silk Road was shut down though, I think it’ll need some time before climbing back up to the exchange rate it had before. Still, if you see hope for it now would be the best time to buy.
I’ve gathered so much new information from yet another great overview! Thank you for sharing. As do most contributors, I believe that this is an interesting concept and does go to show how far the advances in technology have gone. Along with these advances have come the concerns of security, reliability, and of course public education and acceptance. However, these are the same concerns that have come along with anything that was once new, like internet, RFID chips (debit cards) and online transactions. I do believe if the banks could manipulate this system, this would be the track in which we would be headed. I think this could be big and it’s a way for government agencies to track spending (IRS).
Really been wanting to get learn more about Bitcoin and possibly start doing it a lot more often and this has given me the motivation. Awesome post, thanks.
This is some great info to get users started with cryptocurrency in general. There are other coins and great trading opportunities to be made, if one has the stomach for such things. One correction I would like to point out is that BitCoins are not anonymous and can be traced.
I hope this helps.
Depends on your definition of anonymous. You are correct that they can be traced, this is due to the public transactional ledger system which is the foundation. However your name/identity is not associated with your wallet. Though people can figure this out when you perform a transaction with them and depending on how your handle it. You can be creative with multiple wallets/addresses and do need to be careful when you perform actual transactions.
Great introduction to bitcoins. I’ve been fascinated with bitcoins since I learned about it about two years ago. I love the idea of a decentralized, global currency. It takes the financial power away from banks and puts it where it should be, with the people. No doubt once people will realize this, bitcoins will be more popular.
Good introductory blog post.
A few things I thought I would mention is first a link to the Bitcoin group on Reddit (reddit.com/r/bitcoin) as being a reliable news aggregator on all things happening with Bitcoin. The sidebar also contains more informative pages if readers need further information about the coin, where to get it and at some point where to spend it.
Mining Bitcoin itself these days though is not really feasible for the single operator unless you have huge capital to invest in ASIC mining gear, and even then some argue your better off buying Bitcoin on an exchange with the same investment capital as opposed to rolling the dice for a long term Return On Investment.
That is why I point people over to a Minecraft server that pays a small amount of Bitcoin (up to 0.01 BTC per week atm) just for playing the game; having run the Mine4BTC program for a few years now while also helping spread the coin out for more adoption while in turn keeping a steady flow of players on the server. You can find more information about that at minecraftcc.com/getpaid/ and the server in general on sites home page.
Bitcoins are very nice. I like that they aren’t owned by anyone so there’s no real fees. I also love that you can use them worldwide.
They are risky though. Bitcoins are very fluctuant so you have to be really careful if you want to invest in them.
My only concern about Bitcoins is the fact that it is so very anonymous. This allows for all sorts of crime and untraceable at that. I feel that there should be some sort of tie between you and your bitcoins but perhaps that defeats the purpose.
Such an intelligent payment mechanism. I tried it for a while and was mining dust for a few months. It’s impressive how the trading price keeps increasing in favor of the traders. Still, with very minimum assurance that anyone would accept Bitcoins for payment it was hard to find reliable traders. Anonymity only meant that it didn’t matter who was making the trade, so the encryption was a safety net for online miners. I couldn’t help but learn a few things about finance and it seemed that Bitcoin made more sense when used in crowd sourcing projects.
The sad part about Bitcoins now is that since it hit the $1000 mark, and made worldwide news, everyone has tried mining it. People who are richer are mining it with insane mining rigs that go at I believe Terahashes per second. The difficulty has gone way up in mining, and it is almost no longer profitable to mine. But as a cryptocurrency, it’s thriving.
I tried so hard to mine these things its impossble! YOu have to basically have a top of the line computer that is custom made and spend thousands and thousands of dollars to make it. I gave up and quit cause it was costing more on the electric bill and running hot on my computer then making money so I gave up.
Bitcoin has been really useful for me because I have a lot of family abroad. Bitcoin has made it much easier and cheaper for us to send money to each other. I would love to see it used more so I can spend it anywhere.
Uhm, this post was truly intriguing. I had heard about Bitcoins before, but to be honest I didn’t have all this info. I find it super interesting that no one controls Bitcoins! I wonder if buying one of those Ant miners would be a good investment?
According to the link to the site you posted that Ant miner costs $ 1,250 USD! That sounds like a big investment! But if it really is a good investment, I don’t see why not to invest on something like that, I’m sure is more complex than buying that thing tho, otherwise a lot people would be doing it.
Bitcoins are facing legality issues in many parts of Asia, partly due to tax violations, and anonymity issues increasing risks of money laundering. While it is recognised as legal tender almost everywhere else, it shows that this form of currency is only worth what people value it at.
Given how many own cryptocurrencies like Litecoin are trying to enter the market, I do not feel that Bitcoins are a particularly safe long-term investment.
Thanks for sharing that bit of info with us! I honestly felt since the start this was too good to be true! It’s going to be such a chaos if more of those currencies step in! Not col at all for those who have already invested quite a bit on Bitcoins! It’s a shame, because in theory it sounded like such a great idea.
I really like the idea, let’s hope the situation of Bitcoin defines itself more! If it stays this way the next fears years, then I guess it’s safe to say Bitcoins are here to stay.
The difficulty is that Bitcoin is unregulated, that is its inherent nature. How can we define bitcoin without placing more controls over it? While deregulation is good for anonymity and high liquidity currency, there are always two sides to the coin. It will always be easy to exploit Bitcoin for questionable purposes like tax evasion and money laundering.
As much as I admire the concept of Bitcoin there is not much separating it from all the new crytocurrencies entering, other than the fact that Bitcoin was the first one and hence has the “first settler advantage” with the lions share of the market.
I remember when I heard that Mount Gox had shut down. Considering one of the biggest BTC institutions could close it’s doors, I had to keep moving and didn’t want to invest for fear of losing it all.
Bitcoins are a great form of currency and they can grow to be worth a lot if you save them. But they make it so hard to mine bitcoins nowadays. When Bitcoins got released I bet the computer I using right now could mine some. But each bitcoin mined makes the next harder. So I would need an expensive piece of hardware to even have a change to mine some. You also have to think of the power consumption as well. If someone made a quantum computer for bitcoin mining they would be rich.
I keep hearing about bitcoins — in the news, in investment forums… I even heard it mentioned last week in a NCIS show. So, I’ve been wondering what it’s really all about. Your article helped me understand it more. Thanks!
I remember hearing this crazy story about a student that found an old bitcoin wallet on his old laptop with like 10 bitcoins or something, probably more. At this stage that was worth something like several hundred thousand dollars and he wrote a forum post or something asking if he had struck gold, and how it would pay off all his student loans and stuff.
Really nice story, and bitcoin is great. I think it’s just going to grow as well.
I’ve seen the word thrown around so many times, but I always assumed it was something of a “too technological for me” concept to worry about. Like binary — I know it’s there, I just felt it had nothing to do with me. But this is very interesting to read about it in such a simple and clear presentation! It almost seems too good to be true, really. I’ve heard of mining before, too. I just did not know what the advantages of BTC were. Thank you for the great article!
Bitcoin was fun for a while, until they got extremely volatile in their value. If you want to try it out, the best time would probably be now, because it’s on the way to evening out. i don’t know if it’s reasonable just to mine with a single unit or dedicate multiple ones, but if you want to get profits out of it, I suggest you take bitcoins as payments.
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