Bitcoin 101 – What are bitcoins?

Bitcoin is a currency that is fundamentally changing the way people think about money. It is completely digital and not controlled by any government or business entity. Bitcoin issuance is scheduled, predictable, and finite, so there is no risk of a large increase in bitcoins reducing the value of yours. Addtionally, bitcoin transactions are verified by the largest computer network in the world to ensure your transactions occur quickly and accurately.

Advantages of bitcoin

Bitcoin was designed to address the failures of existing currency systems:

  1. Instant transfers - transactions can be viewed on the network instantly and occur 24 hours a day, 7 days a week. Compare this with bank transfers that can take 2-3 days and are constrained to business operating hours.
  2. Worldwide trade – transfers can occur from anywhere connected to the internet, and are not constrained by geographic or political boundaries.
  3. Low or zero fees – most bitcoin transactions can be done for no fees, or for just a few cents, regardless of transaction size.
3002 Unconfirmed Transactions at 7.44.48 PM

Map showing bitcoin transactions over a 10 minute period

How to obtain bitcoins

You can get bitcoins in similar ways to most other currencies:

  • Exchange - Bitcoins can be exchanged for over 30 currencies at online bitcoin exchanges or in person through sites that connect buyers and sellers. Bitcoin exchange volume has been steadily increasing, most recently trading has exceeded $30 million USD equivalent per day.
  • Sell - Like any other currency, people sell products and perform services in exchange for bitcoin. During the month of March 2013, sales of products for bitcoins surpassed $10 million USD in value.
  • Earn - Transactions are audited by bitcoin miners – dedicated computers ensuring all bitcoin transactions are authentic. In exchange for this service they are awarded a small amount of bitcoin. For more information see How are Bitcoins Created?

How to use bitcoins

You can send bitcoins using wallet software that stores bitcoins locally on a computer or mobile device.  To send money, all you need is the wallet address of the recipient – a 27-character name created by their wallet software. Transaction are instantly transmitted and verified by the global network every 10 minutes. Bitcoins can be easily sent from one party directly to another anywhere in the world, making transaction costs a fraction of credit card or bank wire fees.

 

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Not pictured: an actual bitcoin transaction… because they’re digital.

 

For more information about the basics of bitcoin check out the rest of our Bitcoin 101 lessons:

     Are Bitcoins Money?     

     How are Bitcoins Created?

     How are Bitcoins Stored?