Introduction To Bitcoins

Bitcoins are a digital currency created in 2001 by Satoshi Nakamoto.

It is based on open source software and P2P networks with no central authority or issuers.

The coins are saved on your computer in a wallet file or in a third party wallet.

They can be exchanged between anyone with a Bitcoins address.

The database of transactions is spread across a peer to peer network.

They also use digital signatures to ensure they are only spent once and by the person who owns them.



They are created by a process known as Bitcoin mining.

There is where you use CPU power on your computer in order to generate them.

This also generates the encryption keys which keep bitcoins secure.

By generating the encryption you are rewarded with Bitcoins for your effort.

While the transactions are public the transactions themselves are pseudonymous.

Many people who are concerned about privacy like to use Bitcoins for this reason.

They are bought and sold through exchange sites. There they can be exchanged into traditional currencies like the Dollar or Euro or for virtual world currencies like the Linden dollar.

Bitcoins have no central control so they cannot be controlled by any government or authority. There are also no chargebacks.

There is a limit to how many can be created.

There can be 21 million Bitcoins in total.

This is to avoid the currency from becoming worthless from overproduction like fiat money.

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Diminishing geometric expansion combined with the expansion of Bitcoins provides an incentive for early adopters.

There are some scenarios of for failure that could happen to Bitcoins. These include a currency devaluation, a declining user base and a global government crackdown on the software and exchanges.

 

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