Bitcoins: Explained

Bitcoin is the “first decentralised digital currency”. Effectively, rather than transferring currency via bank or online banking service, such as PayPal, Bitcoin lets you make direct P2P payments with ‘Bitcoins’ (BTC).

Benefits of the system include a lack of regulation — whereby international banks won’t take a commission on transactions you make and receive. Your “wallet”, where your BTC currency lives, holds a very large identification address to ensure all transactions have a high level of encryption for maximum security.

Bitcoins are generated all over the internet by anybody running a free application called a ‘Bitcoin miner’. ‘Mining’ requires a certain amount of work for each ‘block’ of coins — this amount is automatically adjusted by the network such that Bitcoins are always created at a predictable and limited rate.

Your BTC are stored in your digital wallet, which may look familiar if you use any existing online banking services. When you transfer BTC, an electronic signature is added and after a few minutes the transaction is verified by a miner and permanently and anonymously stored in the network.

The Bitcoin software is completely open-source and anybody can review the source code. Bitcoin claims to change finance in the same way the web changed publishing and finance. When everyone has access to a global market, great ideas flourish.

Using your BTC wallet, you can purchase games, books, films and other content through the internet. Several currencies exist where BTC can be traded for for $, £, € and more. Bitcoins are a great way for small businesses and freelancers to get noticed. It’s free to begin accepting BTC transactions, there are no chargebacks or fees and additional business comes from the growing Bitcoin economy.

Mining for Bitcoins is naturally far more complicated than simply making BTC transactions.

The basic concept behind Bitcoin mining is that each chunk of Bitcoin ‘blocks’, which contain meaningless random data, can be shuffled together to calculate the ‘hash’ of an entire block. In computing terms, a hash is the result of very complex maths that is very easily to reproduce but impossible to predict. It’s almost as difficult to explain as it is to master, but the main factor is that the more computing power you throw into your Bitcoin mining software, the more BTC you’ll receive at the end of it.

To find out more about Bitcoin and how you can get started, head over to StartBitcoin.

Ben Buffone

Ben Buffone

I'm a web designer, journalist and student in my last year of A-Levels. Joined Geekily in February 2013.

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1 Response

  1. Lysimachus says:

    When do we get the explanation of bitcoin? I’m sorry, but this article is poor. I get the feeling that the author is fairly clueless about the whole process – what about confirmations, preventing double spending, etc? The economic analysis of Bitcoin is missing too. Without simple stuff like this, I’m afraid this article is not Bitcoin: Explained. It’s more Bitcoin: Described.

    “In computing terms, a hash is the result of very complex maths that is very easily to reproduce but impossible to predict”
    In writing terms, this statement means “I don’t actually know what the hell is going on here, so I’ll say it’s complex”. The maths is complex, yes, but it only takes a matter of maybe 30 minutes to get the basics down and produce a decent explanation. If the proper research had been done for this article, we might be slightly clearer on how the maths works, and why it’s there in the first place.

    Please take this comment in the spirit it is meant: constructive criticism. I’m sure the author has the propensity to write great articles, as do the rest of the authors on this site. Sadly, I’m not seeing many excellent articles on here; I’m just seeing “Good”, “Acceptable” and “Poor” articles. Perhaps a point to start would be to name articles more appropriately; that way, there wont be the same expectation of the article. For instance, had this article been named “A brief overview of Bitcoin” there would have been little to complain about beyond a few minor grammatical errors.

    Cheers.

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