In recent weeks you may have heard about Bitcoin on the internet and more recently on the mainstream news outlets. So what is it? What is so special about it? Why should I check it out? I will attempt to explain the highlights right now so grab some coffee and get comfy.
First of all, Bitcoin is a type of crypto-currency. Crypto-what? In the simplest terms possible, crypto-currency is online “currency” that can be exchanged as a money substitute in order to receive goods or services. You can buy a cup of coffee with it, shop for cool stuff online, gamble with it, or even trade it like stock on a virtual exchange for real dollars.
But remember, Bitcoin is not money. Although it can be used almost identically to dollars or euros, there are some big differences between Bitcoin and real money. First, Bitcoin is decentralized. What the heck does that mean? Well, it means that Bitcoin is not backed by any government in any country, so it isn’t regulated by a central bank. This lack of central authority is a major improvement over fiat currency (dollars, euros, etc.) because it isn’t controlled by any one entity and cannot be manipulated, unlike the Federal Reserve regulation of the dollar and its current interest rate. The flip-side of the coin (sorry) is that this decentralization makes Bitcoin appealing to money launderers and other shady characters.
Bitcoin is also embraced for its anonymity. Like cash, Bitcoin transactions leave no paper trail when traded. Furthermore, there are no serial numbers like the ones on your Benjamins. Every user has a digital wallet with an address that cannot be linked to its user’s identity. Transactions can be tracked and verified, but the identity of the user is always a secret.
Couldn’t I just create unlimited Bitcoins? No. The coins are actually created, or “mined” by people called miners as they use their computing power to solve complex mathematical algorithms, or blocks, which rewards them with newly generated Bitcoins. Actually solving an algorithm requires more computing power than one PC alone, so users work together in mining pools, where they pool their computers’ processing power together in order to mine Bitcoin. Each block solved is worth 25 Bitcoin. This is also how transactions are processed across the network.
How many Bitcoins are there? About 11 million Bitcoins exist, but there will only be 21 million ever made because the difficulty of solving a block is pre-determined to double periodically. Bitcoins will continue to be generated until the year 2140.
What is a Bitcoin worth? It depends. The price has fluctuated from $40.00 back in March all the way up to $266 last month, and is currently at about $115. as of May 2013. The high volatility in price is very appealing to short-term traders, who can use this price fluctuation to make quick profits. The volume of Bitcoins traded has surpassed $1 billion.
Are you ready to grab some free Bitcoins? Just open a free wallet at one of the exchanges and type “free Bitcoin” on your favorite search engine to get started. There are tons of resources at your fingertips to get you started.