What Are Bitcoins and How Do They Work?

by Scott Sery on January 29, 2014

What are BitcoinsYou may have heard the latest buzz about Bitcoins.  They have been in the news lately as they are suddenly surging into popularity.  Personally, I had heard the term, but until recently I was not quite sure exactly what they were (other than a virtual currency).  A little bit of research has led me to find that this isn’t just a virtual currency.  It’s an entire money network where you can invest, trade, and use a Bitcoin exchange to convert your coins back into real money.  Want to learn more?  Keep reading for the breakdown.

What are Bitcoins

The best way to explain what Bitcoin and bitcoins are is to call it the internet’s currency.   Currently currency around the world is monitored and regulated by the governing authority for each particular country where that currency is from.  However, with this system and network there is no middleman.  It is a peer-to-peer virtual currency exchange that can be used for just about anything.  In fact, recently there was an entire black market that was shutdown where anything, and everything, illegal was traded.  That said this definition barely scratches the surface of what bitcoins actually are.  The concept, the process, and the network are vast and deep.

How to get Bitcoins

Bitcoins are acquired through basically the same means that dollars are acquired.  One can exchange goods or services as payment.  So if you are a retailer, and a customer wants to pay with bitcoins, you can sell them a product the same way you would if they wanted to pay with a credit card.  Everything is electronic.  The other way to acquire bitcoins is to purchase them on the bitcoin exchange.  A simple swap of dollars for coins (as of the time of writing 1 bitcoin is worth about $811 USD) and you will be up and running.  Finally, you can earn bitcoins through a process called mining.  Basically, programmers have certain problems that they need worked out.  In order to get everything done, you can mine the data.  Compensation is paid out based on how much work you do.  Sound complicated?  Check out bitcoinmining.com for more information (just know that you need specialized equipment to mine).

Where and How to Use Bitcoins

Bitcoins started as a peer-to-peer system of virtual currency.  For the past few years, however, it has evolved to much more than that.  Sure the virtual currency by far the biggest and most widespread use, however, it has become an investment in and of itself.  In February of 2013, not even a year ago, one coin was worth about $19.  Since then it has increased over 4,200%.  For those who are into alternative investments, it looks like this virtual currency is going to have another good run.

Wrapping It Up

Still completely clueless on what bitcoins are and how they work?  I am too.  And I have spent several hours reading and researching and trying to figure this stuff out.  What I do know is that virtual currency is looking more and more to be what the future holds.  And Bitcoin has surged to popularity gaining a commanding lead over anything else that is similar.  If you want in on the game early on, it could be worth learning more about it.  For some great, easy-to-read, information check out the getting started page of bitcoin.org.

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website Sery Content Development
  • I wonder what would happen if people decided bitcoins were worthless and you couldn’t cash them in anymore.

    • In my opinion I think that is what will inevitably happen and I’m looking on riding the wave all the way down!

    • There would be a lot of mad people. 🙂

    • Scott Sery

      Along those lines, what would happen if people decided the US dollar was worthless?

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