Bitcoins! Bitcoins! Bitcoins! and Bitcoins!
It seems you cannot evade this phenomenon if you’re online. From Facebook to Twitter, from LinkedIn to articles in WIRED magazine, Bitcoin is all the rage!
As I decided to write this short blog article on Bitcoins, there is so much information that is coming out, that I am literally having a hard time keeping up with it, and have amended this post to include newer sources of information.
Information presented here is for anyone to read and understand what Bitcoins are. I have provided a long list of references at the bottom of the article to read more, should you so desire. As with all information / financial advice, please do read and consult with other before investing.
In the past couple of days, my Inbox has been inundated with emails from friends & family and more importantly people on my social media timeline asking me about Bitcoins. Of late, with Bitcoins breaking US$ 1,000 barrier per coin, now everyone is wondering if they missed the boat in investing (consider this, it was a few measly Dollars per BTC in January of 2013).
It seems everyone is interested to know about this digital currency phenomenon that is being talked about extensively on the net. A lot of questions have been asked. Is this a scam? Is it worth buying Bitcoins now? Will the price go up? Shall I invest in Bitcoins? How do I mine Bitcoins? Who controls it? Shall I invest my savings into it? etc.
There is literally so much information being published on Bitcoin by the minute, it is almost impossible to keep up. Needless to say, information overload comes easy.
In brief: Bitcoin is cryptocurrency. Without going into the details, think of it as a currency, made electronically, with some kind of a cryptic or secret formula. Its analogous to paper currency that has many in-built markings, so no one counterfeits them.
The currency exists on the Internet (because of it being digital in nature), not outside of it.
No country, or bank or regulator or person controls this currency.
They may own pieces of it, but no one person or authority has ownership rights over Bitcoin. Its open-source.
Think of Bitcoin as a fiat currency. Except in this case, there is no government, the government are the people of the Internet. The netizens. You and I. We.
There are some ground rules with this currency that are extremely important, and the most important ones can be summarized below:
- Only 21 Million Bitcoins will ever be created. Once the number has reached 21 Million, no more Bitcoins will be made and hence, inflation is kept out.
- The smallest unit of a Bitcoin is called a Satoshi – which is a 100 Millionth of a Bitcoin, or 0.00000001
- It was developed by a person(s) we do not know much about called Satoshi Nakamoto
- The code and source of Bitcoin is open, so we know what the software/system is capable of and everyone generally agrees there is no malicious component in it.
- Bitcoins can obtained either by mining or buying them from an exchange or being sent to you.
- To make your physical world connect with the Bitcoin world, you have to have currency exchanges to either Buy Bitcoins (using some specific currencies) or Sell your Bitcoins and obtain the currencies supported by the exchanges (usually, USD, JPY, GBP, Euro, etc.)
- There are a couple of popular exchanges from where you can buy Bitcoins: Mtgox, Bitstamp, BTC-e and BTC China (as of 29th of November these are the major exchanges).
- You can also buy Bitcoins via local meetups (in-person meetups held in many cities). Page on Localbitcoins a great resource to find who can Buy/Sell Bitcoins in your city.
- Bitcoin transactions are anonymous. Its like Swiss banking. You only have a number. You have no clue who is behind that number. Payments are made to that number only.
- Each and every transaction made on the Bitcoin system is recorded. So there is a general ledger worldwide that keeps track of all Bitcoin transactions, in particular this ledger is being maintained by Blockchain.
- Transactions are irreversible. Once a transaction is made, it cannot be reversed. Period. Only way to reverse the transaction is for the receiver to pay you back via another transaction.
- Transactions are nearly instant, it takes a few minutes for ledgers worldwide to confirm your transaction. So if you are in the business where immediate confirmation is required, you might want to wait a few minutes before other ledgers start confirming your transactions. Usually companies like Bitpay will wait for 6 transactions confirmations before they say A-Okay. It all varies, but like I cited, transaction ledgers are transparent and sometimes it takes a few minutes to update. See below image for how a sample looks like.
and below shows transaction confirmations.
- Bitcoins are stored in Wallets. Lose the wallet, you lose you money. If you opt for a wallet online, and the site gets compromised and your money from your wallet is stolen. Its gone. There is no insurance for this.
- Wallets storage is to be taken very seriously. Since the money is digital in nature, there will be a vast ecosystem of criminals who will try everything to hack into your machine or phish for your wallet information.
- More and more businesses and people are starting to accept Bitcoins now. Of particular note is a company called BitPay that makes it extremely easy for you to accept Bitcoins on your website.
- Two great sources to get real-time market information on Bitcoins are: Bitcoin Charts and Bitcoinity
Bitcoin Market Cap
The 29th of November 2013 was a historic day for Bitcoins, today, 1BTC nearly matched the price of Gold. Now that’s something for a digital currency!
Before you really dive into the world of Bitcoins, please note, that this is real money you are playing with. Read up as much as you can on the subject matter before venturing on to play with it. Be very wary of scammers. Since the money is digital in nature, it can be stolen very easily.
Never ever deal with a newbie offering you to sell and/or trade Bitcoins. Never.
You will see a lot of people claiming they have been doing bitcoins for months now, etc. remember every single transaction on the bitcoin system can be verified from the wallet ID, so use the resource at Blockchain to ensure that you are dealing with a genuine party.
Again, be alert and be sensible. Remember the old saying, a fool and his money are easily parted. Don’t be the fool.
Bitcoin ATMs starting to go live, here is one that is in Canada: World’s First Bitcoin ATM goes live in Vancouver.
So here are some important bullets for people wanting to know everything about Bitcoins:
- Bitcoin is a digital currency
- It is abbreviated as BTC
- Just like the old days, when Gold and Silver had to be mined from the mountains and rivers, Bitcoin is also mined, albeit digitally.
- The mining is digital in nature. Don’t wonder too much about it, just think of it as your computer crunching number (that is mining).
- Only so many Bitcoins can be mined and released into the overall Bitcoin ecosystem per day.
- The more computing power that comes in to mine, the more harder it becomes for more Bitcoins to be produced (not an accurate statement, but think of it as a built-in resistance to being duped by large amounts of computing power) so that influence is minimized.
- No one person can influence the system
- It has been designed so that there is no single source or headquarters or association that controls it.
- That’s right, no one controls Bitcoin.
- Its software is open-source
- There are 10,000s of Bitcoin nodes running in the world.
- It is Peer-to-Peer in nature. Just like your Bit-torrents. There is no one controlling it.
- The money supply is limited, i.e. there will only be 21 Million Bitcoins mined. No more.
- Because the money supply is limited, no one can just print (or mine) more Bitcoins and introduce inflation.
- No Government, Association, Body, Person, Group, etc. controls Bitcoins.
- Slowly and surely, quite a few websites (businesses) have started accepting Bitcoins as a payment method.
- Bitcoin transactions are guaranteed and non-reversible, i.e. if you pay someone with Bitcoins you cannot reverse the transaction. That money is as good as gone to the other person. This is particularly important for businesses who want to sell products/services without the fear of looming chargebacks.
- There are only four methods of obtaining Bitcoins:
- You would need a Bitcoin Wallet to get started with Bitcoins.
- Right now a little over 11 Million Bitcoins have been mined (remember, mining ceases when 21 Million Bitcoins have been mined)
- The current market value of these 11 Million Bitcoins is a little more than $14 Billion (as of 29th November 2013).
- No one knows for sure who invented Bitcoins. The author’s name is Satoshi Nakamoto. No one knows who he is. Most people believe this is a pseudonym and there are more people behind the creation of Bitcoin.
- If you want to mine Bitcoins, do note, your best bet is to use ASIC hardware, here is a great list of all the popular Bitcoin Mining Hardware.
- Bitcoin Foundation – A body that is promoting Bitcoin usage (do remember its not an organization that controls Bitcoin, no one does)
- Great resource for Bitcoin news is: Bitcoin News, Prices, Charts, Guides & Analysis – CoinDesk
Here are some great introductory videos regarding Bitcoins:
- Bitcoin Wallet Wiki
- Strong Coin
- Choose Your (Bitcoin) Wallet
- Things you need to know about your Wallet
- Bitcoin Magazine: Bitcoin Wallet Options
- Multibit Wallet
- Blockchain Bitcoin Wallet
Trade / Exchanges
Here are some of the famous exchanges where Bitcoins are traded:
- Coinbase – the simplest way to buy, use, and accept Bitcoin
- BitMit – Online Auction Site to Buy/Sell stuff paid with Bitcoins
- SpendBitCoins – Turn your Bitcoins into gift cards from Amazon, Barnes & Noble, iTunes and many more
- BitcoinCodes – Get gift codes for services like XBoxLive, PSN or iTunes instantly online
- Start Bit Coin: Beginners Guide to Mining Bitcoins
- Tech Crunch: How to mine Bitcoins
- Pooled Mining
- Bitcoin Mining
- Introduction to Bitcoin Mining (PDF Book, Free download)
- WeUseCoins: Bitcoin Mining Guide
Bitcoin Article (How to get started)
- LifeHacker: What is Bitcoin and what can I do with it?
- WeUseCoins: How to get started with Bitcoins
- Quora: How does Bitcoin work in layman’s terms?
- Myths about Bitcoins
- Bitcoin Beginner (PDF Books for Sale, very cheap and very good read)
Organizations / Forums / Portals
- BitCoinTalk (Forum)
- WeUseCoins (Portal)
- Bitcoin Foundation – Not to be mistaken to to be confused as an organization or any body that owns or rules over Bitcoin. This is just a foundation made by a couple of people involved in Bitcoin.
The World of Bitcoin According to Google
What are Bitcoins and How Do They Avoid Taxes
How a Bitcoin Transaction Works (Click to Enlarge)
The Anatomy of a Bitcoin
- Bitcoin Wiki
- Bitcoin Magazine: Bitcoin 101
- BitPay – Accept Bitcoins on your website: https://bitpay.com
- Tech Crunch: Bitcoins and the end of money
- Guardian: What are they, and how do they work?
- Quora: Do you know anyone who has become a US Dollar Millionaire due to early investing and/or mining in Bitcoin?
- Bitcoin Trading Signals
- The Bitcoin Trader
- CoinDesk – A Bitcoin online portal.
- BitcoinTalk – New to Bitcoin? Start Here (really good source to discuss Bitcoins)
- Accept Bitcoin on your website with a Widget: Coin Widget
- Bitcoinity (Markets)
- Slate Magazine: Will Bitcoins Make Me Rich?
- Jon Bringhurst: How does bitcoin work?
- BlockChain.info (Bitcoin Market Statistics)
- Economist: How does Bitcoin work?
- Satoshi Nakamoto: What bounty would be needed to determine Satoshi Nakamoto’s identity?
- Bitcoin: What’s to stop me from buying bitcoin at Coinbase/BitPay and selling it at a higher price on Coinbase once it catches up to Mt. Gox?
- Bitcoin: Why is Litecoin growing at an even faster rate than Bitcoin?
- Swiss Banking: What are the advantages of using Bitcoin versus a Swiss bank account?
- Bitcoin: If I’m bullish on digital currencies should I mine or buy?
- Litecoin, The Silver To Bitcoin’s Gold Shoots Up Past $30. by Brian Roemmele on Accepting Payment Cards
- Bitcoin: What are some interesting facts about Bitcoin?
- Bitcoin: Is there any fundamental floor or ceiling to bitcoin price in the long term? If so, what would those be?
- Guess Who Just Moved To Position Number 5 In Payments. by Brian Roemmele on Accepting Payment Cards
- Bitcoin: If nobody knows who invented Bitcoin, on who’s server does Bitcoin run then? Can’t the inventor simply shut down the whole system or randomly steal bitcoins?
- Bitcoin: Why do we see so many minuscule Bitcoin trades on Bitcoin exchanges?
- Explaining Bitcoin Without Buzzwords
- Bitcoin: What is the future of Bitcoin in a climate where governments deem it an illegal currency?
- Bitcoin: Are there bitcoin startups that are specifically addressing the global remittances opportunity?
- Bitcoin: What are the biggest problems with bitcoin right now?
This page was last updated on December 7, 2013.