Bitcoin: What it isSimple Explanation: Bitcoin is a new form of currency that was once worthless, yet now has grown to be worth considerably more than the U.S. dollar. One bitcoin is currently worth ~$15 USD at the time/date of this post. Rather than a replacement for the U.S. dollar, the Euro, or other government currencies, bitcoins should be thought of like gold or silver where 1 oz. is equivalent to X amount of dollars. In that sense, Bitcoin is more like a commodity than a currency. Granular Explanation: Bitcoin is a global, decentralized virtual currency that first began in 2009 by its creator, Satoshi Nakamoto. It operates on a vast P2P network which is currently comprised of thousands of systems. Its aim is quite ambitious: to solve many of the issues with currency today, such as providing near-cash anonymity with online transactions, governments being able to create their own money whenever they want, transfer fees associated with transactions, and more. No banks, no fees, and no traces. As a currency, Bitcoins are currently divisible down to 8 decimal places. What this means is that products or services that accept bitcoins as payment may accept .025 BTC, .00000643 BTC, etc. Once again, the comparison to gold and silver are applicable here. As opposed to a currency, bitcoins operate more like a commodity. Watch the official Bitcoin promotional video below to get a basic visualization of how it works:
Now, after seeing a general overview, the next step to grasping some of the finer details of how Bitcoin works is to watch the next video. In it, Gavin Andresen gives a more focused overview of what Bitcoin is and how it works:
Lastly, for a much more extended dive into Bitcoin, here is an hour-long interview with Gavin Andresen and Amir Taaki:
Now that you have a fairly good idea about what Bitcoin is, the next issue to cover is how bitcoins are made and how to go about obtaining and using them.
How bitcoins are createdThis is the most complex part of Bitcoin for most to grasp. Put simply, coins are created through the solution of extraordinarily complex mathematical problems. These problems are so involved, that your average computer would take years to solve just one -- resulting in merely one single bitcoin. The primary reason for such a complex system is to prevent the creation of bitcoins on an as-wanted or as-needed basis, thus making them a prized possession. And to maintain their prized status, a grand total of 21 million bitcoins will be all that is ever made. For a more extended dive into the mining of bitcoins, refer to "mining" in the section below.
Mining, trading, buying, and selling bitcoinsBitcoins exchange hands through a number of ways. Though there is a currency exchange rate for bitcoins, their value is still highly subjective due to sharp market fluctuations. Additionally, the utilization of bitcoins is left completely up to interpretation by any given party. Once you have bitcoins in your possession, it is up to you as to how you want to use them. See below. Trading: One of the more cost-effective and popular ways of obtaining bitcoins, people offer goods, services, and information in exchange for bitcoins. Some people are even asking for donations in the form of bitcoins as opposed to Paypal or other popular donation platforms. Buying and Selling: Since bitcoins now have a monetary value attached to them, there are exchange markets available that allow you to sell your bitcoins for cash; however, such markets are not necessary to leverage since anyone can set up the buying or selling of bitcoins via any avenue they choose. Mining: This is the the most involved method of obtaining bitcoins. It requires one to have a computer to dedicate solely to the mining of bitcoins. And if you think your hot new Xeon processor is going to get the job done, try again. GPUs are where it's at since they are ultra-superior in how fast they perform mathematical calculations. And if you think your hot new gaming rig is going to make you rich, take a look at the types of bitcoin miners people are constructing:
That's a lot of horsepower running there and a lot of money being put into something that many consider to be a fruitless endeavor. People like in the video above play a major role in the bitcoin ecosystem currently, and the hope is that those who amass large quantities of bitcoins will engage in the exchange of them; much like the selling and trading of collectibles and precious metals, like gold and silver, thus stimulating the Bitcoin ecosystem. You can either build your own Bitcoin miner, purchase a pre-configured Bitcoin miner, rent a Bitcoin farmer for a fee, or just take part in a pool.
Opinions and CriticismsIn this section, I'm going to give my personal opinion on the matter, as well as cover general criticisms and concerns to be considered. While there is certainly much to be excited about, there is also plenty to be cautious about. Bitcoin is essentially a risk, first and foremost. Once that fact is accepted, a user can then go about using Bitcoin however they so choose -- be it simply collecting them or mining them. My only fear of investing in bitcoins is not that the idea won't succeed, but rather, that the current vehicle of Bitcoin may fail since it's the first of its kind -- thus, the amount of worldwide scrutiny that will befall it as governments realize the potential it has to damage their economy. As I noted in the introduction of this article, the Principal of Bitcoin is giving a presentation at the CIA this week, so I think that's a pretty telling signal that Bitcoin isn't just a revolutionary idea, it's a revolutionary idea with traction. Head on over to the next page where I continue with the opinions and ramifications, as well as provide an array of additional resources and ultimately conclude the article.
Conclusion and additional resourcesWell, I hope you have found this post to be useful and informative! If you're still confused, please make sure you watch the videos I linked to above. Hearing Gavin actually talk about Bitcoin is the factor that really made all of this gel for me. Once you have that base understanding, reading through the technical details of it are much more facile. With that said, I'm going to close out here with links to a bunch of resources. If you made it this far, I'm going to be linking out to a couple of real treats -- such as how to construct your own Bitcoin miner. This is all excellent material, so have it, thanks for reading, and good luck with your Bitcoin endeavors! Resources: -The Official Bitcoin Website -Build a Cheap Bitcoin Miner (AWESOME site!) -Mining hardware comparison -Bitcoin.org Forum -Bitcoin Wikipedia Page -Bitcoin Introduction Wiki -Bitcoin Faucet: Free bitcoins from Gavin Andresen! -Bitcoin Consultancy -Bitcoin Monitor (Watch Bitcoin transactions in real time!) -A great article about Bitcoin -A great audio interview with Gavin Andresen -Stephen Chapman SEO Whistleblower Related Stories:
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