Updated Aug 18
I have been at SpendBitcoins for over 3 years now, and still the most common question I get asked is:
The simple answer: Bitcoin is what you would get if you crossed a paper currency like the US dollar with a commodity like gold and a payment system like PayPal:
1. Like a paper currency: Bitcoin is a digital currency which can be traded person to person via the internet or used to pay for goods and services like cash. There is no central bank or authority that controls bitcoin.
2. Like a commodity: There are only a set number of bitcoins. No one can print more.
3. Like a payment system: You can send any amount anywhere in the world instantly. It can be traded all over the world 24/7.
Safety is a primary concern of bitcoin users. There are many factors that keep bitcoin highly safe.
1. Bitcoin transactions are anonymous. You can keep your identity and finances secure through anonymity.
2. Bitcoins are not stored in a bank. You store your bitcoins in a bitcoin wallet with a unique key that only you have access to.
3. A network of peer-to-peer computers keeps vigilant track of every transaction. Every single transaction is kept in a public record called the block chain.
4. The encryption used to keep bitcoin secure is state of the art.
5. No one can charge your bitcoin wallet. Only you can control where your bitcoins are sent. Unencrypted wallets and online bitcoin wallets are subject to less security. Trading directly peer to peer requires trust. Measures must be taken to secure your computer and identity. For more information see weaknesses and security [coming soon].
No single person or institution owns or runs bitcoin. This is an important feature of bitcoin. It is decentralised and owned by the community through open source development. All balances and transactions are kept track of by the network of bitcoin users.
Bitcoin is backed by exactly the same thing as gold is backed by: utility. Just as gold can be used to conduct electricity, make beautiful jewelry, or award Olympic athletes, the bitcoin network can be used to store value, prove ownership, and transfer ownership worldwide instantly with no need of a trusted third-party.
It must be made clear, however, that there is no central authority that guarantees the value of bitcoin. Bitcoins are, therefore, backed by the market that accepts them. As long as there is demand, bitcoins retain some value.
How much demand there is compared with supply defines how great their value is. The supply of bitcoins is subject to the rate of their generation by bitcoin miners and how many are available for trade. As with any investment, purchase or trade, there is risk.
Yes. The value of bitcoin can change suddenly. There have been rises and falls in the value of bitcoin, but the general trend is more steady. Due to supply and demand bitcoins have increased in value over time.
Bitcoin value is simply defined by supply and demand. Imagine if the market was flooded with 10,000 luxury German cars, but there were only 10 people wanting to buy them. The cars would lose value. Bitcoin works in the same way.
If a long-time Bitcoin collector were to suddenly put 1,000,000btc on the open market, the value of Bitcoin would drop. The value would rise again as the available bitcoins were bought up. There will be a finite number of bitcoins released, and they are released at a predetermined rate, this helps bitcoin retain value due to continued demand balanced with supply.
You can use bitcoins like any other currency, but with some added features:
Bitcoins are “mined” at a pre-determined rate by powerful computers using a lot of resources to solve increasingly complicated mathematical problems.
If you would like to know more about bitcoin mining, please read our bitcoin mining guide.
What better way to get started than to get your first few bitcoins free!
Or start accepting bitcoins at your business or as tips on your website, blog, youtube channel etc.
Or buy some bitcoins in your local area.
Any questions? Please ask away below. I’m happy to help. That’s what I’m here for!