What exactly are Bitcoins?

A few questions you might ask: What exactly is it? How does it work? How secure is it? What are its advantages (and disadvantages) to sovereign flat currencies?

How does it work?
Bitcoin is a relatively new “digital” currency which isn’t issued by a central bank, nor is it government regulated. Instead, everyone on the Bitcoin network, everyone who is running the Bitcoin software, are the ones who collectively perform the functions that a central bank would typically perform. These people create the currency and they also make sure that the transactions are valid, any invalid transactions are rejected. Without the users on the Bitcoin network, the entire system would fall. The Khan Academy has a great YouTube video found here.

Bitcoin Security
As stated in the previous paragraph, Bitcoin is like cash. You hold these Bitcoin in a digital wallet, just as you would with physical cash and a physical wallet. If someone steals your digital wallet, they have your Bitcoins. More info can be found here: http://bitcoin.org/en/secure-your-wallet

What if a server crashes? Will I lose all my money (Bitcoins)? No. Every one of the tens of thousands of Bitcoin “miners” out there looking for Bitcoin actually hold a record of all the transactions that have happenened on the Bitcoin network. There is no one single server that can crash and take all your Bitcoins away. It is well distributed and reliable in that way.

You are responsible for holding what I call your “private keys” that let you spend your Bitcoins. And if you lose your private keys, either to a hacker attacker, or if your computer crashes and you didn’t have a backup of your keys, then you can lose your Bitcoins.

Bitcoin’s Future
Since this is still a new currency, I would consider it to be a high-risk investment and you should only invest time and money that you can afford to lose. The Bitcoin network is constantly growing and the more people using a means of exchange, the more valuable it becomes. Take gold for example, people trade or exchange this more than platinum or silver, making it king.

As of writing this blog the current Bitcoin Exchange price is $135.70 USD to BTC (Bitcoin)

You may be asking yourself, can I mine Bitcoin? You can but it’s too late to get into the game now since you will not see any profit. I personally have mined at home pushing a mere 666MH/s which netted me about $9 a month. As of this time I have 0.05 BTC in my digital wallet. If your feeling risque, here is a neat DIY Raspberry Pi Bitcoin miner.