Bitcoin is digital money used for secure and instant transfer of value anywhere in the world. It is not controlled or issued by any bank or government – instead it is an open network which is managed by its users. Much in the way email improved communication by making it fast and cheap, bitcoin is an improvement on existing payment methods which were not designed for the internet era.
The value of a bitcoin is not tied or pegged to the value of any other currency. Similar to stocks or property, bitcoin’s value is determined by buying and selling in the open market. A bitcoin’s price changes in real time based on the number of people who want to buy or sell it at a given moment.
Bitcoin allows you to instantly send any amount of money to anyone in the world without needing a bank. It allows you to access your money without needing an ATM or credit card – bitcoin gives you back control over your money. Other global transfer services, like Venmo and PayPal may take 3-6 business days for the funds to be transferred over while Bitcoin can be transferred anywhere in only a few minutes. You can pay friends back for dinner, buy your next computer, and donate to charity, all using bitcoin.
Many large online businesses accept bitcoin, such as Overstock, Expedia, and Dell. Non-profits such as Wikipedia and the United Way also accept bitcoin donations. Look for a bitcoin payment option at many of your favorite websites and you’ll be surprised how many accept bitcoin!
You will need to get a bitcoin wallet to store your bitcoins. There are many different bitcoin wallet providers such as blockchain and coinbase that you can download for free on your smartphone. Once downloaded, you can create your wallet and begin buying and selling bitcoin.
All transactions are confirmed and included in the block chain. The block chain is a shared public ledger that stores the information on every transaction using bitcoin throughout the world. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.
A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. People are able to forge handwritten signatures, but with the bitcoin wallet, this special signature prevents the transaction from being altered by anybody once it has been issued.
Transactions can be instantaneous if they are “zero-confirmation” transactions, meaning that the merchant takes on the risk of accepting a transaction that hasn’t yet been confirmed by the bitcoin blockchain. Or, they can take around 10 minutes if a merchant requires the transaction to be confirmed. That is far faster than any inter-bank transfer.
Bitcoin transaction fees are minimal, or in some cases free.
Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you.
Once bitcoins have been sent, they’re gone. A person who has sent bitcoins cannot try to retrieve them without the recipient’s consent. This makes it difficult to commit the kind of fraud that we often see with credit cards, in which people make a purchase and then contact the credit card company to make a chargeback, effectively reversing the transaction.
Bitcoin transactions don’t require you to give up any secret information. Instead, they use two keys: a public key, and a private one. Anyone can see the public key (which is actually your bitcoin address), but your private key is secret. When you send a bitcoin, you ‘sign’ the transaction by combining your public and private keys together, and applying a mathematical function to them. This creates a certificate that proves the transaction came from you.
Bitcoin was designed to have a maximum number of coins. Only 21 million will ever be created under the original specification. This means that after that, the number of bitcoins won’t grow, so inflation won’t be a problem.
Because bitcoin is entirely decentralized, you need trust no one when using it. When you send a transaction, it is digitally signed, and secure.
With bitcoin, you own the private key and the corresponding public key that makes up a bitcoin address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).