A beginners guide to bitcoins

What is a bitcoin?

Essentially a bitcoin is a digitally stored unit of value that can be transferred between users of the bitcoin network. When one user transfers a unit to another unit a digitally encrypted message is transmitted across the network of computers and if enough of these machines agree that it is a unique transaction it is confirmed.

Where do bitcoins come from?

Bitcoins are generated through a process called “mining”. Mining involves checking for a solution to a digital puzzle. Each time a batch of bitcoins is mined the next solution is much harder to find than the last thus ensuring it would not be possible to make lots of them in one go and destroying their value.

Who invented bitcoins?

Nobody actually knows who invented the bitcoin – although they (this could be a person or people) go by the pseudonym Satoshi Nakamoto. There recently has been speculation that the crypto-currency may have been invented by the recently arrested creator of the silk road web although this does not appear to be true.

How much is a bitcoin worth?
A bitcoin is worth what someone is willing to pay for it. At the time of writing this article (28th November 2013) people were willing to pay the follow prices for one:

1 BTC Bitcoin = ¥ 7,100.00 Chinese yuan
1 BTC Bitcoin = ¥ 110,295.37 Japanese Yen
1 BTC Bitcoin = $ 1,497.21 Singapore Dollar
1 BTC Bitcoin = $ 8,422.00 Hong Kong Dollar
1 BTC Bitcoin = 1 BTC Bitcoin
1 BTC Bitcoin = $ 1,180.00 Canadian Dollar
1 BTC Bitcoin = $ 1,205.84 Australian Dollar
1 BTC Bitcoin = $ 1,338.44 New Zealand Dollar
1 BTC Bitcoin = £ 670.01 Great British Pound
1 BTC Bitcoin = kr 5,917.52 Danish Krone
1 BTC Bitcoin = kr 7,200.00 Swedish Krona
1 BTC Bitcoin = R$ ∞ Brazil Real
1 BTC Bitcoin = 1,000.00 CHF Swiss Franc

1 BTC Bitcoin = € 802.00 Euro
1 BTC Bitcoin = 37,400.00 RUB Russian Ruble
1 BTC Bitcoin = zł 3,359.74 Polish Zloty
1 BTC Bitcoin = ฿ 35,254.09 Thai baht
1 BTC Bitcoin = $ 997.00 U.S. dollar
1 BTC Bitcoin = 1,000 mBTC MilliBit (mBTC)

How do I get a bitcoin?

You can get a bitcoin either by mining one for yourself, mining one as part of a group of miners and taking a share of the rewards or you can convince someone to transfer you one – generally either by paying for it, gambling for it, selling something to someone or working for it. Some people give them away for free. Please see the Faucet section of our website for more information on free coins.

How many bitcoins are there?

There are currently around 11,000,000 bitcoins in circulation. The total amount of bitcoins that there will ever be is around 21,000,000 this is a limitation built into the currency to prevent a glut of coins coming into the market and destroying the value.

What is so good about bitcoins?

Bitcoins represent a way of transferring capital around the world cheaply, quickly and currently anonymously. However, the recent revelations about national governments (Especially the USA) snooping on internet traffic and the fact that the blockchain (a shared database of all transactions) is available for all to look at may compromise the anonymity of the service.

I have heard that bitcoins are bad as people use them to do illegal things with. Is this true?

That is subjective. Until the advent of bitcoins the United States dollar was the currency of choice for illegal transactions. Dollars aren’t bad are they? Gold can also be used anonymously – but is just much harder to move around than bitcoins.

What can I do with a bitcoin?

You can transfer it to someone else or keep it. More and more businesses are starting to accept bitcoins as payment for goods and services. Richard Branson recently announced that he would accept bitcoins for a trip on his new Virgin Galactic service to the edge of space.

Why can’t a bitcoin be forged?

The fact so many different individuals are part of the network and own bitcoins makes it very difficult to ‘double spend’ coins. There is such a thing as a 51% attack whereby one individual manages to get control of 51% of the network. In the event they did this they could do as they liked with bitcoins. As more people get involved this becomes increasingly more difficult.

What is going to happen to bitcoins?

The truth is nobody knows. They could replace money in the majority of transactions in which case they will become incredibly valuable or there could be an as yet unnoticed flaw in the system that renders them completely worthless. Both arguments are at this stage equally valid. However, no matter what happens I believe that bitcoins have already changed the world.

For a more detailed (and more technical) explanation of bitcoins – please click here.

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