What Is Bitcoin

What Is Bitcoin

Bitcoin is a type of digital currency that is used for online or mobile transactions, also known as a cryptocurrency. Created in 2008, Bitcoin was the first cryptocurrency ever developed. Others that have been developed since then are Litecoin, Namecoin and PPCoin. Bitcoin is used to send and received funds, and no financial institution is involved in overseeing the exchange of funds so there are no fees. Purchase Bitcoins and store them in your wallet until you need to use them to make purchases. The wallet also holds the user's Bitcoin address and a private key or password which is required to make transactions. Forget that private key and you are separated from your Bitcoin funds forever because there is no administrator to reset a key/password. While the decentralized nature of transaction processing causes this drawback, it's also a positive in that it creates a good layer of security for using the network no one else can get at your funds.

Mining: How Bitcoin Processes Transactions

Bitcoin uses a peer to peer network to process transactions and to validate Bitcoins with digital signatures. The network puts a timestamp on each transaction to create blocks of ongoing chains of transactions, which are evidence of purchases. The whole system depends on Mining, which refers to computer programs running on this network to process new funds that enter the system when Bitcoins are purchased and for collecting and verifying bundles of transactions.

People on the network who agree to become "miners" must run specialized computer hardware to be able to use the program. For their trouble, these individuals can collect fees on their transactions. The mining software stops users from using the same Bitcoin to pay multiple recipients or making other types of fraudulent payments.

How Much Is a Bitcoin Worth?

So who decides how much a Bitcoin is worth? Bitcoin users do, and the value rises and falls throughout the day like a security on a stock exchange does. When demand increases and supply decreases the price goes up for single Bitcoin, as is the case with just about any financial economy.

At the time this was written early in June, 2013, a Bitcoin was going for around $123 USD, close to $128 in Canada and just over 94 Euros. About one month earlier on April 9, 2013, Bitcoin was up to $209 USD. On January 1, 2013, the USD price was just $13. Several sources cite the European debt crisis as the cause for the fall in prices early in the year. Given the value of a single Bitcoin, you can pay with fractions for smaller purchases.

If you accept Bitcoin payments it's best to go with a provider that will convert those payments into your regular currency immediately so you avoid potentially losing part of the value of that payment.

Although Bitcoin has been around for a few years, it's still not widely used. Because of this and other factors the value of any Bitcoin you buy can be extremely volatile.

More Bitcoin Facts:Security: While Bitcoin is touted as being extremely secure with the type of hash encryption used for transactions, all transactions are stored permanently on a network and anyone can see the balance and transactions made by a Bitcoin address. No one knows who is using that address unless you buy something that needs to be shipped to you. In that case you have to reveal your personal information which can be connected to the address by the seller. You should create a new Bitcoin address each time you receive money on the network.

Future Not Guaranteed: Being that Bitcoin is still really an experiment it could go down the tubes on any day, at any time.

No Refunds: When you make a purchase on eBay or other sites that provide services for buying and selling, there's a grievance policy you can use if what you buy isn't what you expected and you can probably get your money back. This is not the case with Bitcoin. The only person who can give you a refund is the seller and if they choose not to do so, there is no third party to go to with a grievance. However, because of the computing power that's required by the mining software, your home computer will not handle the demands. Even if you have the computing power available to run the mining software, you can plan higher electric bills due to the intense computations that will be required of your computing equipment.

How To Geek has the most understandable detailed information I found about how the Bitcoin network works.

To get a good idea of how you would go about spending Bitcoins, take a look at Popular Mechanics' How to Spend a Bitcoin.

You can find a list of businesses that operate online and in the real world here on Bitcoin's Trade wiki.

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