What is Bitcoin?

When people say “Bitcoin” they are referring to one of two things.

1. A digital currency.

2. A payment system used for sending and receiving money online.

Typically the term is used to apply to the currency itself, but the payment system is every bit as important as the currency. Let me explain both.


Bitcoin as a Currency

Bitcoin is a digital, decentralized, peer to peer, pseudonymous currency based on

cryptography. If that sentence made no sense to you, don’t worry - I’ll break it

down for you.

Digital – Bitcoins exist only as code, they do not exist as anything

physical. People can (and have) made physical representations of Bitcoin,

but ultimately they are based in the digital world.

Decentralized – There is no central bank or institution that issues or

controls Bitcoin. It is a group of individuals all over the world who run the

program that keeps the monetary system running.

Peer to Peer – You control your own Bitcoin, and when you send

Bitcoin to someone else, it goes directly to them. There are no banks or

middlemen.

Pseudonymous – While all Bitcoin transactions are publically

viewable in an open ledger called the Blockchain (we’ll get to that later). 

History of Bitcoin

Where did Bitcoin come from? Even though it is only five years old it already

has a unique story.

The idea for Bitcoin came from a developer named Satoshi Nakamoto. That was

the name on the original paper that laid out the technical aspects of the new

project – but it was a pseudonym. The real identity of Satoshi Nakamoto is still

unknown.

The original paper was written in October 2008. The nine-page paper briefly

touches on each of the major aspects of the system that Satoshi envisioned, as

well as naming this new “Peer-to-Peer Electronic Cash System” with the

moniker that it uses today: Bitcoin.


Why Use Bitcoin?

The Advantages and Disadvantages of Digital Money

Now you have a general sense for what Bitcoin is, and know about its history.

But why use it at all? What is wrong with our current money?

In order to use money today, you must have a significant amount of trust in

multiple institutions.

 1. Bank. When using banks, you are trusting that they will be able to

pay you back when you withdraw your money, and that they will not go

bankrupt

 2. Central Banks. The United States has the Federal Reserve, the

European Union has the European Central Bank (ECB), Japan has the

Bank of Japan; this is repeated the world over. 

 3. Payment Processors. We trust that when we spend or accept money

online, the payment processors will ensure there are no double spends, and

that they will not reverse the transaction

4. Governments. Events in Cyprus during March of 2013 show how

dangerous governments can be to our currency.

Simple to use. While they may not be very easy to obtain, they are

easy to spend. All you need to do is input the receiver’s public address

(often done by scanning a QR code), enter the amount, and hit send.

How to Obtain Bitcoin

So, you’re sold on the benefits of having Bitcoin. Great! But how can you get

them? There are a variety of methods, some simpler than others, but I’ll walk

through each of them for you.


Purchasing Bitcoins

The most common way to obtain Bitcoin is by purchasing them. There are many

different avenues to purchase Bitcoin, but two ways are the most common.

One is to purchase Bitcoins locally and in person. This frequently occurs if you

know someone with Bitcoin. Avid Bitcoin users are often happy to sell a small

amount to other users in order to get them started.


Storing and Securing Your Bitcoin

#1 — Accessible Anywhere: Online Wallets

You don’t need to have a standalone program on your computer to use Bitcoin,

you can use an online wallet. This is exactly what it sounds like: a website that

offers to hold your Bitcoins in an easily-accessible online wallet. This has its

advantages.

No syncing necessary, your Bitcoin are instantly available.

It can be accessed in more places than just your computer; all you need

is an internet browser.

#2 — Bitcoin on the Go: Mobile Wallets

You don’t need a computer to use Bitcoin at all—most smartphones are capable

of using a wallet app. They aren’t able to download much of the blockchain at

all, and aren’t particularly secure either.