The rise of a mysterious digital currency is rapidly changing the nature of the global economy, but many people are still scratching their heads asking, “What is Bitcoin?”
In actuality, it’s less tech-y, geeky jargon than you think. Instead, the common sense behind the service, currently used by as many as 2.5 million people, becomes apparent with a little digging.
Wait, so random numbers are worth money?
On the surface,a random strand of hard-to-guess numbers being worth money can seem confusing, but it helps to understand if you think of them simply as “currency.”
The five-dollar bill in your wallet is worth five units of currency at the food truck, but is it really anything more than a piece of paper? If you showed the Romans a $20 bill and said, “This has worth. I’m going to trade you it for five loaves of bread,” they might be confused, too.
In much the same way that U.S. dollars have different value against the pound or euro, each bitcoin is valued at a specific amount of currency. The coding acts in the same way as the serial number on a dollar bill. Like all other currencies, bitcoin is used in exchange for goods and services.
How are bitcoins created?
Bitcoin is obtained via a process called “bitcoin mining” wherein a (free) app called “bitcoin miner” guesses hundreds of thousands – if not millions – of codes per minute. These codes that the miner is trying to guess are long strands of numbers and letters that are themselves the bitcoins.
The codes are hard to guess because once the miner successfully guesses one, the user gains one bitcoin for having guessed the corresponding code.
The server for Bitcoin automatically regulates the amount of currency given out based on how much volume the app is taking in by making these aforementioned codes harder and harder to guess.
Where do bitcoins exist?
Once you have the bitcoin(s), you store them in a digital wallet and can send them anonymously. Every transaction is sent to the network and a miner determines if the amount sent equates to or is less than the amount in the digital wallet and attaches an electronic signature to the transaction, albeit retaining the anonymity.
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Anybody around the world can use Bitcoin, and given its digital nature, people in countries with an unstable currency or a high crime rate don’t have to worry about their Bitcoin stash losing its value or being stolen (save maybe for some crazy hacking).
Along with being totally global there are little-to-no transaction fees or holding fees; transferring bitcoins to other people or holding it in a digital wallet doesn’t cost much compared to the fees banks and corporations charge for international transfers and holdings.
On top of these lenient policies, an account can never be frozen and, in many places, one can convert their Bitcoin currency to their currency of choice (Euros, Yen, Dollars, etc.) if a certain vendor or distributor doesn’t accept Bitcoin.
Drawbacks: Oof, hacking
Its disadvantages do exist, although the list tends to be much shorter than the pros.
As previously mentioned, one of the disadvantages is the nature of cyber infidelity and hacking. Unfortunately, very few industries (if any) are truly immune to hacking and data theft, and this has manifested itself in the Bitcoin ecosystem multiple times.
Another drawback to the anonymity of Bitcoin in particular is the transactions that deal with illegal goods and services. Bitcoin makes it hard – sometimes impossible – to hold the responsible parties accountable for conducting mischievous business and illegal activity.
How do I get started in Bitcoin?
However, for those of you who are wondering how to get your hands on some bitcoins without spending hundreds of dollars on a bitcoin miner, here are a few steps you can take to be on your way to buying and receiving bitcoins:
Get yourself a wallet.
While there are many types of bitcoin wallets setting one up doesn’t take much time. Vendors like Coinbase and Blockchain, for example, are two great places to start. However, you’ll need to know what kind of wallets do what you want them to so do your research!
Fill it with bitcoins.
After you’ve set up your wallet, you can begin buying bitcoins in an online exchange. Again, there are several, so know your stuff before diving into the first hit you get when you Google “bitcoin exchange.”
Start spending!
Once you’ve built your bitcoin wallet to a comfortable amount, start shopping. Many websites and even some stores throughout cities are starting to accept bitcoins as payment.
Our take
While the concept of digital currency can sometimes seem foreign to many, it only takes a few minutes to become familiar with the basics.
The currency helps many people connect with others they otherwise might not have been able to under different exchange systems.
Bitcoin provides people from every country the opportunity to store digital money, mine for more of it and to exchange it for goods and services at little-to-no costs, all while keeping anonymity for those who desire it.
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