Ever wanted to buy something discretely over the internet? At least in person you can pay with cash. But online, your options are a little more limited. You’d think someone would have found a way to solve this problem. And you’d be right.
Bitcoin is an online, digital currency that can be exchanged without using any personal information. Finally you can purchase something online without the whole world knowing. Is it too good to be true? I’ll let you judge for yourself.
Tell Me More
Bitcoins are generated & transferred using the bitcoin software. The software is open source which means anyone can download it, open the hood, see how it works, change it, and run it. Changes will be ignored if they conflict with the majority of people running the software. There are currently thousands of computers connected to the bitcoin network making sure new transactions are validated & recorded. They are also rewarded for their efforts with transaction fees and new bitcoins generated by the software about every 10 minutes.
New bitcoins will only be generated for about a century until the 21M limit is reached. The closer to the limit, the less & less new bitcoins are generated every 10 minutes. Currently, most transactions can be made for free. But the closer we get to that limit, the more transaction fees will increase.
To create a transaction, you need a bitcoin address.
What is a Bitcoin Address
A bitcoin address is kind of like an email address. Anyone can send bitcoins to your bitcoin address, but you need the password to spend them. The address is created from the password so you only really need access to the password. It is safe to give out your address because it can’t be reverse-engineered to get your password.
The easiest way to get a password is to use a website or download software to randomly generate one. By randomly creating one, no one will know you own the corresponding address unless you tell them. Some applications will store your password in a “wallet” for you so you don’t have to memorize long random letters & numbers.
Be very careful. If you lose or someone steals your password, your bitcoins will be gone forever. It is best to keep it in a safe place & very cautious of what websites you generate or keep them on. Some applications will even give you a printable version you can store in a safe.
How To Send Them
When you want to transfer a few coins, you just need the password, how many coins, and what address they are going to. The application you store your wallet with will broadcast this transaction information to the bitcoin network. The pending transaction will appear instantly & confirm in less than 10 minutes. But to be safe, you should probably wait an hour for large amounts.
To prevent fraud & keep accountability, every transaction is publicly available. Because anyone you give your address to can see how many bitcoins it holds, it is always best to create a new address for every transaction. Although everyone can see addressone gave addresstwo 5 bitcoins, because addresses are randomly generated, no one knows who owns what addresses.
How To Get Some
Although you can get bitcoins by downloading the software & helping the network, you need an extremely powerful computer. So instead of getting new bitcoins, it is usually easier to find someone willing to trade you something for them. Now you need to find an exchange.
There are several websites (coinbase & Mt. Gox) that will convert dollars to bitcoins for a small fee. First, you will need to link a bank account & transfer dollars to the exchange. It may take a few days for the money to be transferred. Once the exchange has received your dollars, you can place a bitcoin buy order.
If you feel uneasy about linking your bank account or pressed for time, there’s a website that will show you people in your area willing to exchange cash for coins. Most people won’t accept reversible forms of payment such as Paypal or credit cards for bitcoins because bitcoins are irreversible.
What Can I Do With Them
There are several companies that accept bitcoins for different goods & services, but most also accept dollars. The two most popular reasons to purchase bitcoins are for investment & black market activities.
Due to a maximum limit of total bitcoins, they are being used as a hedge against inflation. I wouldn’t commit my whole life savings, but it is always good to disversify.
With growing regulation from gambling to drugs, bitcoin has offered a way for people to get what they need with less risk. I don’t condone these actions, but bitcoin certainly provides a unique solution to circumventing the law.
How Safe Is It
Because of its decentralized nature, it would be very difficult to shutdown. Third party exchanges & online wallets have been compromised, but the core bitcoin network has not. The software is also open source so anyone can take a look for flaws. Although there is a core group of developers that make modifications to the software, they are not necessarily in charge or own it. And the changes they make can be ignored by a majority of the bitcoin network in case of mistakes or malicious intent.
Implications
As of writing this article, the bitcoin market cap is $450M with each bitcoin worth $42 and steadily rising. Bitcoin fills a niche that not much else can. But first, it will have to be thoroughly vetted. If bitcoin becomes popular enough, more competiting cryptocurrencies may emerge. Maybe the cryptocurrency without a hard supply limit is better suited. Finally, people will have a choice without having to change their residence.
Cryptocurrencies open the door to a lot of new possibilities. Ability to use the vending machine without having small bills or change. No more “$5 minimum credit card purchase” at the gas station. Easy way to tip or split a restaurant check with friends. No more account overdraft fees. Cheaper prices in general due to low transaction fees. No worry of being mugged for it or your card being skimmed. Play poker online without the risks of Black Friday. This is the future.
