Two cents blog

A beginner’s guide to Bitcoin

by Laura Casey on 27 February 2014

Am I the only one who has seen the word Bitcoin so much recently but still feel behind the times with understanding what it is and how it works?  Instead of falling even further behind the times, I did some research to figure out what all the hype is about.

I thought I’d share with you 10 key pieces of information that might help you understand Bitcoin a bit better as well.

1.    At its most basic, Bitcoin is a digital form of money that emerged in 2009. As it happens, the most popular type of digital currency.

2.    Bitcoin is decentralized, meaning it is not controlled by any one person, company, or government. Instead, the system is managed by a software algorithm.

3.    Unlike conventional dollars, Euros or Yen, Bitcoins aren’t printed, but created and held electronically.

4.    There is a finite supply in the world – currently 12 million in circulation, set to top at 21 million. Computers around the world ‘mine’ for new bitcoins using software programs following a mathematical formula to produce bitcoins. Time and increasing popularity have brought more and more powerful, mining-specific devices onto the network, increasing the difficulty and energy required to mine worthwhile amounts of Bitcoin.

5.    A Bitcoin wallet is used to store, send and receive payments to people anywhere in the world, almost instantly and at almost no cost. Every transaction is registered on the BlockChain. This means you can see exactly what’s being traded and the equivalent amount in AUD. One of the more interesting records, is the Largest Recent Transaction summaries.

6.    Bitcoin is similar to traditional currencies in that it is recognised and has a value, it can be used to buy things and its value can change according to market variables. With increased demand over the last few years there has been an increase in its value. In April 2011, the value of Bitcoin held steady at US$0.75, and by January 2014, the value had skyrocketed to more than US$1,000. Currently 1 Bitcoin trades at around AUD$640.

7.    Bitcoin isn’t alone in the digital currency market. Other currencies include PeerCoin, LiteCoin and Ripple, and the noveltly Dogecoin (modelled after the internet meme). Dogecoin made headlines recently when Redditors were encouraged to donate in the form of Dogecoin to crowdfund the Jamaican bobsled team to compete in the Winter Olympics – the group was able to amass about $30,000.

8.    Several barriers exist which could prevent Bitcoin from succeeding, including concerns about online security, a lack of regulation and the anonymous nature of transactions.

9.    There are an increasing number of merchants who accept Bitcoin. You can buy clothes, jewellery, furniture and many other goods from across the globe. Say you wanted to buy a new dress that cost $100, which might cost you roughly 0.18358143 BTC.

10.  You can buy bitcoins from regulated exchanges, or directly from other people selling them. You can pay for them in a variety of ways, ranging from hard cash to wire transfers, depending on who you are buying them from and where you live.

Phew! If you made it this far after all that information, good work! I’ll be the first to admit, it can seem very overwhelming getting your head around such a complex concept which is rapidly evolving and reinventing the way we deal with money; but ultimately such a fascinating insight into how the advancement of technology and the Internet is still capable of changing an everyday part of our lives.

If you’re more of a visual person and want a quick wrap up of what Bitcoin is and how it is mined, take a look at the following videos:

What is Bitcoin?

What is mining?

I don’t know about you, but I think it’s time to give my brain a little rest.

Before that though, I would love to know, who amongst us have invested in Bitcoin and their thoughts on the matter? If you haven’t, are you thinking about giving it a go?

Laura Casey is a Media Coordinator at BCM

- Slimming on March 3

Extremely insightful and educational. Thanks for the heads up.

- Paul Cornwell on March 3

Laura, overnight The Wall St Journal published a story about how MT.GOX, once the dominant exchange for bitcoin trading, announced that more than US$470m of the virtual currency had vanished from its digital coffers. Apparently a 'technical glitch' had opened the way for fraudulent withdrawals. Hmmm.

- dwayne on February 28

maybe they should create a collective noun for all the initial generation of digital currencies. what about 'ponzicoin'

- Paul Cornwell on February 28

Nice post Laura. As I understand it there are 2 schools of thought on Bitcoin. One is that it's the future of currency exchange in the world. And some very well informed Silicon Valley entrepreneurs are backing it big time. The other is that it will never be more than an 'in club' currency for geeks (and also criminals). My vote is for the latter.

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