If you have been involved with Bitcoin, both acquiring and spending coins, chances are you have told someone you know about it. Understanding Bitcoin or any Cryptocurrency for that matter can be very challenging for someone who has not been involved with it and has heard very little about it. When first trying to explain Bitcoin to some friends, I had a very hard time doing it well and left them more confused than informed. I have done some research and have figured out a way to explain it that even your grandparents could understand the basic concepts of Bitcoin. I will explain Bitcoin from the foundation up.
Bitcoin is a peer to peer open source software which allows for the instant transfer of the bitcoins to anyone in the world. Each coin is unique and is only owned by one person at any given time. The coins are not a physical, tangible object, but rather a collection of code that is unique to coin. This concept might be hard to understand, and the most frequent question I get asked is: how do they have any value if they are not a physical thing thing? The answer to that is, they have value because people place value in them. The United States dollar was formerly backed by actual gold up until 1971. The United States dollar bill now has the value of $1 because we say it does, not because it is backed by anything. So what does this mean for Bitcoin? This means that each bitcoin is backed by the faith of the people who use it, just like the real, physical currency used by the united states.
Bitcoins are produced by the developers, who give them out to people who use their computers to audit the transactions that take place every second. These transactions are put onto something known as the Blockchain. The blockchain is like an archive of information that stores each, and every transaction that has gone through the network. These transactions are encrypted using Cryptology, which is a method of encoding each transaction with a very complex and long mathematical proof system. Simplified, this means that the system can prove by mathematics, that one person owns one coin and no one else in the world can own that coin at the same time. You can rest assured that if you have a coin, nobody else in the world can have that coin unless you send it to them or do not protect your wallet.
To get bitcoins, you will need to setup a wallet. Think of your wallet as an application that you would have on your phone, it is unique to you and provides an address in which you can easily copy and paste and send to others to send you coins. There are multiple types of wallets, and you will have to decide which one will work best for you, Paper wallets are the most secure out of all of the types. A paper wallet is a piece of paper with a unique code. As long as nobody sees your unique code, they cannot touch your wallet or your coins. The second most secure type is a desktop wallet; this wallet can be downloaded onto your computer, and you can password protect it, in case your computer is ever hacked or stolen. You can even backup the files on a USB flash-drive to recover your coins if your computer is stolen. Once the coins are in your wallet, they are safe as long as you maintain your wallet responsibly. To get bitcoins, you can either purchase them off of an exchange for FIAT money, offer goods and services for them, or mine them, which is the method of auditing transactions I mentioned before.
You can spend them online at a variety of highly reputable vendors; you can sell them to other people or exchanges for real money, or you can purchase goods or service from individuals. They are your coins, and you have the choice to control how you spend them and what to do with them.
Treat your coins with care and be cautious when spending them to individuals that might not seem credible. Once a transaction has sent, it cannot be undone. Be wary of people trying to scam you, just with things like money transfer services in real life, people will try to exploit the system and take advantages of new and inexperienced users. A good rule of thumb is to avoid the transaction altogether if you feel like something isn’t right or seems off.
Bitcoin allows you to transfer any amount of coins instantly with very minimal, insignificant fees. You can transfer thousands of dollars worth of bitcoin for a fee of less than 5 cents. These transfers are safe and secure and cost close to nothing to send. If you were to send a payment of the same size through a bank wire transfer, you would have to wait all day and pay a fee closer to 1-3% of the transfer amount. Bitcoins allow you to trade freely and avoid the costly fees of banks or money transfer services. Bitcoin is completely decentralized from any country and, therefore; there are no banks to go through, making it fast and almost free.
Hopefully, this article will help you explain Bitcoin to people easily and with minimal confusion. As with any new system, it requires research and experience on the topic to gain more knowledgeable in the area. This article is just a bare-bones explanation of the coin and does not go in depth on the complex workings of the coin. Bitcoin is a very fun, and rewarding experience once you get started, and it is the future of currencies and how payments will be made all around the world in the future.
Last modified: April 20, 2014 18:34 UTC