Bitcoin

Bitcoin (symbol: BTC) is the first type of cryptographic based digital electronic currency , money or value asset, peer to peer payment system and network protocol. 

 It relies on the creation of string of characters (letters and numbers called an address (eg 175tWpb8K1S7NmH4Zx6rewF9WQrcZv245W) with a value attached (a BTC amount) this in a sense is the virtual 'coin’. 

It is also known as a public receive key. There is also a private key that is held by a user in a wallet. This combination of public and private key with an associated value is essentially a bitcoin.

This amount and address combination can be used to exchanged for goods or services (though more often it is used to exchange for local currency) through a distributed internet based network of computers that verifies or confirms the transaction to another address. 

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A generic Bitcoin symbol. image: bitcoin.it

A BTC has value because there is a only a finite amount of bitcoins (21 million) generated through the network.  It's value comes also from it's secure cryptographic structure which makes it virtually impossible to double spend or duplicate transactions.

 This secure structure requires large amounts of computing power (called ‘proof of work’) to generate. Bitcoin miners assist in creating cryptographic sequences aka hashes of SHA256wikipedia in exchange for small amounts of bitcoins which also confirm the exchanges of bitcoin amounts between peers. 

All transactions of bitcoins are recorded on a large 'ledger' aka a block chain about which is currently about 491,601[current number] blocks , which has accumulated to 129 GB [current size].  This is sent out to all people that have bitcoin core wallets and gradually increases over time as more transactions occur.

Everyone with a full wallet has an encrypted copy of all transactions, though some wallets can be kept online on a different computer server.  This is a bit like a central bank that keeps track of money within a country, except in the case of bitcoins  everyone who wants it has a copy of this central database 'ledger', this means it is widely distributed or decentralised cross checked and verified. 


How it may relate to the real world economy

A normal currency is defined/valued usually by a country economy, what they do, what they export etc. In the case of bitcoin there is no country but a distributed network that only really 'exports' computing power in terms of super strong encryption sequences (these are used to verify transactions). 

Economically bitcoin behaves like a commodity currency (like gold) rather than fiat currency. Though it can have aspects of both.

People can pay currency say a USD/AUD etc  to get some amount or fraction of a bitcoin, this is partly equivalent to a certain amount of computing time to generate a super strong encryption string.  Super strong encryption is of value to people sending information about exchanges so people in-between can't steal or copy the information. 

The value of bitcoin against the US dollar over the last year. image: bitcoincharts.com

Bitcoins can be exchanged for other currency such as USD, Euros etc. For example a computer laptop costs$US 1500 which is about 0.20311 BTC, The value of a bitcoin is about 1BTC = $US7,386 but this tends to vary quite a bit. To convert bitcoin values from one currency to another try using  preev.com.

Donating with bitcoins

If you think this site is useful and you have a bitcoin wallet, use the donate button below to donate something to clearlyexplained.com.


For a more technical discussion of Bitcoin as an electronic currency see this article  by Michael Nielsen.

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