What is bitcoin, how is it different from "Real" Money and how can I get some?

Bitcoin is a virtual currency. It does not exist in the physical form in which the currency and coin in which we are accustomed to exist. It doesn’t even exist in a form as physical as Monopoly money. These are electrons, not molecules.

But think about how much money you manage personally. You receive a salary that you bring to the bank – or it is deposited automatically without even seeing the paper on which it is not printed. Then use a debit card (or checkbook if you are from the old school) to access these funds. At best, you see 10% of it in cash in your pocket or pocketbook. So it turns out that 90% of the funds you manage are virtual – electrons in a spreadsheet or database.

But wait – these are funds in the US (or those from any country you are from), safe in the bank and guaranteed by the full faith of the FDIC up to about $ 250,000 in the account, right? Well, not exactly. Your financial institution may require only 10% of your deposit. In some cases it is less. He lends the rest of your money to other people for up to 30 years. It charges them for the loan and charges you for the privilege of allowing them to grant it.

How is money made?

Your bank can make money by lending it.

Let’s say you deposit $ 1,000 in your bank. They then lent him $ 900. Suddenly you have $ 1,000 and someone else has $ 900. Magically, there is $ 1,900 floating around, where there used to be only one voucher.

Now say that instead your bank borrows 900 of your dollars from another bank. This bank, in turn, borrows $ 810 from another bank, which then lends $ 720 per customer. Poof! $ 3,430 per minute – almost $ 2,500 created from nothing – as long as the bank follows the rules of your government’s central bank.

Creating bitcoin is as different from creating bank funds as cash is from electrons. It is not controlled by the central bank of the government, but rather by the consensus of its users and nodes. It was not created by a limited mint in a building, but rather by distributed open source software and computers. And it requires a form of actual work to create. More on that soon.

Who Invented Bitcoin?

The first bitcoins were in Block 50 (Genesis Block), created by Satoshi Nakomoto in January 2009. At first, they didn’t really have any value. It was just a cryptographer’s toy based on an article published two months earlier by Nakomoto. Nakotmoto is obviously a fictional name – no one seems to know who he / she is.

Who monitors everything?

Once Genesis Block was created, bitcoins have since been generated by tracking all transactions for all bitcoins as a type of public ledger. The nodes / computers performing the calculations in the book are rewarded for this. For each set of successful calculations, the node is rewarded with a certain amount of BitCoin (“BTC”), which is then generated new in the BitCoin ecosystem. Hence the term “BitCoin Miner” – because the process creates new BTC. As the supply of BTC increases and as the number of transactions increases, the work required to update the public ledger becomes more difficult and complex. As a result, the number of new BTCs in the system is designed to be around 50 BTCs (one unit) every 10 minutes worldwide.

Although the computing power of bitcoin mining (and updating the public ledger) is currently growing exponentially, the complexity of the mathematical problem (which, incidentally, also requires some guesswork) or the “proof” needed to dig BitCoin and settle transaction books at any time. So the system still generates only one block of 50 BTC every 10 minutes or 2106 blocks every 2 weeks.

So, in a sense, everyone is following it – that is, all nodes in the network are tracking the history of each bitcoin.

How many are there and where is it?

There is a maximum number of bitcoins that can ever be generated, and that number is 21 million. According to the Khan Academy, the number is expected to reach around 2140.

As of this morning, 12.1 million BTC were in circulation

Your own bitcoins are stored in a file (your BitCoin wallet) in your own storage – your computer. The file itself is proof of the number of BTC you have and can travel with you on a mobile device.

If this cryptographic key file in your wallet is lost, this also applies to your delivery of bitcoin funds. And you can’t bring it back.

how much does it cost?

The value varies depending on how much people think it costs – just like exchanging “real money”. But since there is no central authority trying to maintain the value around a certain level, it can vary more dynamically. The first BTCs were essentially worthless at the time, but these BTCs still exist. As of 11 a.m. on December 11, 2013, the public value was $ 906.00 US for bitcoin. When I finished writing this sentence, it was $ 900.00. Around the beginning of 2013, the value was about $ 20.00 US. On November 27, 2013, it was valued at more than $ 1,000.00 US for BTC. So it’s a little volatile right now, but it’s expected to subside.

The total value of all bitcoins – at the end of this sentence – is about $ 11 billion.

How can I get some?

First, you need to have a bitcoin wallet. This article has links to getting one.

Then one way is to buy a little from another private party, like these guys from Bloomberg TV. One way is to buy some on the stock exchange, such as Mt. Gox.

Finally, one way is to dedicate a lot of computing power and electricity to the process and become a bitcoin miner. This is beyond the scope of this article. But if you have a few thousand extra dollars lying around, you can get a pretty big platform.

How can I spend it?

There are hundreds of merchants of all sizes who take bitcoin for payment, from cafes to car dealerships. There is even a bitcoin ATM in Vancouver, British Columbia to convert your BTC into cash in Vancouver, British Columbia.

And so?

Money has a long history – millennia. A somewhat recent legend tells us that the island of Manhattan was bought for a vampum – mussels and the like. In the early years of the United States, various banks printed their own currency. During a recent visit to Salt Spring Island in British Columbia, I spent a currency that was good only on the beautiful island. The common theme among them was an agreement of confidence between its users that this particular currency has value. Sometimes this value was directly linked to something solid and physical, such as gold. In 1900, the United States pegged its currency directly to gold (the “Gold Standard”), and in 1971 it severed that link.

Currency is now traded like any other commodity, although the currency value of a particular country can be supported or reduced by central bank action. BitCoin is an alternative currency that is also traded and its value, like that of other commodities, is determined by trading, but is not withheld or reduced by the actions of any bank, but rather directly by the actions of its users. . However, its supply is limited and well-known, and (unlike the physical currency) is the history of every bitcoin. Its perceived value, like any other currency, is based on its usefulness and trust.

As a form of currency, BitCoin is not a whole new thing in Creation, but it is certainly a new way to make money.