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What is Bitcoin?

A Brief Introduction to the World's First Decentralized Digital Currency

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What is Bitcoin?
Photo © John Lamb

So you’ve been seeing a bunch of websites start taking something called “Bitcoin” but you have no idea what it is, whether you should use it or how you can get started with it.

As its name suggests, Bitcoin is a type of digital currency. Here’s what else you need to know about it.

About Bitcoin

Bitcoin.org describes itself as the first decentralized currency in the form of an open source software that uses peer-to-peer technology for the purpose of worldwide payment processing. People can use bitcoins to purchase good and services online wherever they’re accepted as a payment option.

The currency is not overseen by any central authority and is entirely driven by its Internet community, so processing fees are extremely low or non-existent. Since there’s no bank to manage the bitcoin supply, bitcoins are instead distributed on a completely automated and scheduled basis to servers known as “miners.”

Anybody who runs the free application called “bitcoin miner” can generate bitcoins. As a miner, you are required to perform or “mine” a certain amount of work in order to acquire a certain amount of bitcoins. The amount depends on how the network makes adjustments so that the amount of newly created bitcoins are distributed at an entirely predictable and also limited rate.

Bitcoin Wallets

To get started with using bitcoins, you’ll need a bitcoin wallet to store your bitcoins and make transactions. In a lot of ways, using a wallet is similar to any type of online banking. You can set up your wallet here.

An electronic address is added when you make a bitcoin transfer to another user or receive bitcoins from another user. The transaction then takes a couple minutes or so to be verified by a miner so it can be stored in the network anonymously.

An application called Bitcoin-Qt is available for accessing your wallet on a computer, which can be downloaded for Windows, Mac or Linux. There’s also a wallet application you can get for your Android mobile device, which you can use for mobile or in-store payments.

Or as an alternative option, some people have found it easier to sign up for a different online service like Coinbase, InstaWallet or My Wallet. Any of these will allow you to buy or sell bitcoins.

Bitcoin Mining

As mentioned earlier, bitcoin mining requires running a free application on your computer to earn bitcoins. Your computer basically runs the software and spends its time trying to solve sets of mathematical equations. When one of those equations is successfully solved by your computer, you receive a payout in bitcoins.

It sounds easy enough, especially since your computer is the one doing all the work, but keep in mind that you are just one little problem solver in a massive sea of others mining for the same thing. Chances are you won’t see great results on your own for the amount of work your computer will need to do.

Joining a bitcoin mining pool will likely get you faster results and more worthwhile payouts. To get an idea of what how it kind of works while doing it in a group, check out BitClockers.com, or to find out more about mining in general, visit the FAQ section on WeUseCoins.com.

Benefits of Using Bitcoin

Now you know the basics of the bitcoin currency, but you may still be hesitant to give it a try. Here are some of the general advantages of using bitcoins.

Because the software is completely open source and not run by a central body, bitcoins can be transferred directly from person to person without needing to go through a middleman like a bank or clearing house – unlike most other currencies. That means little to no transaction fees, you can use them in any country and nobody has the authority to freeze your account. There’s a lot of freedom.

Not only can you buy physical goods like gifts, books and video games, but there are also a few currency exchanges out there that give you the option to trade in your bitcoins for actual dollars. And since bitcoin prices change over time, you can actually make real money by investing in bitcoins when the prices are low and then selling them later at a higher price. It’s pretty simple and takes patience, but it works.

Bitcoin Magazine made a list of places that accept the currency for goods and services, which is a good place to start once you get your first payout and want see where you can spend it. You can also check out the Bitcoin wiki and Bitcoin subreddit for as additional resources.

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