Understanding Bitcoin: A Simple Guide

Tim Racette

What exactly is Bitcoin?

How do you get it? And what can it be used for?

Bitcoin is a type of cryptocurrency, a peer to peer digital money system that allows you to send or receive money across the internet without being linked to a real identity or 3rd party (ex: PayPal or Amazon).

In centralized banking such as the Federal Reserve, corporate boards or governments control the supply of currency by printing units of fiat money or money deemed by the government to be legal. Bitcoin is the currently the largest of its kind in terms of total market value.

How are Bitcoins created?

Bitcoin are generated using a process called mining.

Mining is the act of record keeping that verifies transactions in the blockchain. Miners collect newly broadcast transactions into a new group of transactions called the block.

Using powerful computers, miners take the information in the block and apply a mathematical formula to it, turning it into a seemingly random sequence of letters and numbers known as a hash. Every time someone successfully creates a hash, they get a reward in Bitcoin.

Security

Bitcoin only keeps track of addresses where the money is. Each address has two important pieces of cryptographic information or keys, a public one and a private one.

  • public key is what determines the ownership of bitcoins, and is very similar to an ID number. If someone wanted to send you bitcoins, all you would need to do is supply them your bitcoin address.
  • private key is similar to an email password; only with it can the owner send Bitcoins from it.

How can I acquire Bitcoin?

There are several exchange platform that allow you to you to purchase Bitcoin using USD or your country’s currency and store them in a digital wallet.

concept of bitcoin

Where can I spend my Bitcoins?

You can transact with any other person or merchant who accepts Bitcoin via digital wallets. A simple QR code can be captured using your phone and the money sent/received instantly.

Etherum, the second largest

Etherum is another open-source Cryptocurrency that is making its way into the mainstream market. Etherum went live in July of 2015, so it’s relatively new, but it is growing at an incredible rate. The two are built on different platforms and Etherum uses a different algorithm, but by in large the same concepts apply.

 

Interested in Learning More? The book Digital Gold by Nathaniel Popper does a good job of telling the story of Bitcoin. But there are several other books out there as well, so do your research beforehand.

Thanks for reading and have a great week.

 

Twitter:  @EminiMind

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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