What is a Bitcoin?
At its most basic level a Bitcoin is a form of money
that can be used to pay for products or services just like the dollar bills
that sit in your wallet.
A Bitcoin lives as code inside a computer. It’s
intangible, but it works in many ways like cold, hard cash.
To acquire a Bitcoin, you need to buy it with
another currency or have someone send it to you in a transaction. To hold a
Bitcoin, you need to keep it in a digital “wallet,” a piece of software, on
your local computer or you can you can allow a company to hold your “wallet” on
their servers.
Bitcoin payments are made by transferring the
digital currency between two users’ “wallets.” The fees for these transfers are
lower than for more traditional forms of payments, like using a credit card or
a bank transfer, because they are not backed by the safeguards and intermediary
services provided by companies like Visa or Bank of America.
This means Bitcoin payments can usually be made more
quickly and cheaply but they lack safety nets that come with using a more
established system, such as deposit insurance and being able to contest a
credit card charge.
“For your average person, there’s no good reason to
have large sums of money in Bitcoin,” said Jerry Brito, a senior research
fellow at George Mason University’s Mercatus Center. “You want to buy Bitcoin
when you want to use it for something.”
A retailer and merchant has to be willing to accept
Bitcoins as a payment and right now not many do.
The dating site OkCupid and WordPress.com are among
the businesses that have started to accept Bitcoin.
Bitcoin is “decentralized” meaning that it’s created
and maintained by a network, rather than controlled by an institution like the
Federal Reserve. The monetary policy of Bitcoin has already been established in
a sense, with a cap of 21 million Bitcoins being able to enter circulation to
reduce the risk of inflation.
Right now the price of a Bitcoin is around $100.
You might have heard that Bitcoin transactions are
anonymous. That’s not entirely true and reflects only part of the utility of
the currency. Bitcoin backers stress that it is really semi-anonymous, meaning
that all transactions are publicly recorded on a so-called “block chain,” a
sort of ledger, but that you have control over how much identifying information
to provide. Read more:
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