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: