What is Bitcoin, how is it different than "real" Money and how do I get some?

Bitcoin is a virtual currency. It does not exist in the kind of physical form that the currency and coin that we are used to exists in. It doesn’t even exist in a form as physical as Monopoly money. They are electrons – not molecules.

But consider how much cash you personally handle. You get a paycheck that you take to the bank – or it gets deposited automatically without you even seeing the paper it’s not printed on. You then use a debit card (or checkbook if you’re old school) to access those funds. At best, you’ll see 10% of it in cash in your pocket or wallet. So it turns out that 90% of the funds you manage are virtual – electrons in a spreadsheet or database.

But wait — that’s US (or whatever country you’re from) funds, safe in the bank and guaranteed by the full trust of the FDIC up to about $250,000 per account, right? Well, not exactly. Your financial institution may only need to keep 10% of its deposits as a deposit. In some cases it is less. It lends the rest of your money to someone else for up to 30 years. It charges them the credit and charges you for the privilege of having it lent.

How is money created?

Your bank creates money by lending it.

Suppose you deposit $1,000 at your bank. They then loan $900 of it. Suddenly you have $1000 and someone else has $900. Magically, $1900 is now floating around where there was just a giant before.

Suppose your bank lends 900 of your dollars to another bank instead. This bank, in turn, lends $810 to another bank, which in turn lends $720 to a customer. phew! $3,430 in an instant – almost $2,500 created out of thin air – as long as the bank follows your government’s central bank rules.

The creation of bitcoin is as different from the creation of bank funds as cash is from electrons. It is not controlled by a government’s central bank, but by the consensus of its users and nodes. It is not created by a limited coin in a building, but by distributed open source software and computing. And it requires some form of actual work for creation. More on that shortly.

Who Invented BitCoin?

The first BitCoins were in a block of 50 (the “Genesis Block”) created by Satoshi Nakomoto in January 2009. At first it had no real value. It was just a cryptographer’s toy based on a paper published by Nakomoto two months earlier. Nakotmoto is a seemingly made-up name – no one seems to know who he or she is.

Who keeps track?

After the Genesis block was created, BitCoins have since been generated by tracking all transactions for all BitCoins as a sort of public ledger. The nodes/computers that perform the calculations in the ledger are rewarded for doing so. For each set of successful calculations, the node is rewarded with a certain amount of BitCoin (“BTC”), which is then re-generated into the BitCoin ecosystem. Hence the term “BitCoin Miner” – because the process creates new BTC. As the supply of BTC increases and the number of transactions increases, the work required to update the public ledger becomes more difficult and complex. As a result, the number of new BTC in the system is designed to be around 50 BTC (one block) every 10 minutes worldwide.

While the computing power for mining BitCoin (and for updating the public ledger) is currently increasing exponentially, so is the complexity of the math task (which, by the way, also requires some guesswork) or “proof” required to mine become BitCoin and to settle the transaction books at any given time. So the system still only generates a 50 BTC block every 10 minutes or 2106 blocks every 2 weeks.

So, in a way, everyone keeps track – that is, all nodes in the network are tracking the history of each individual BitCoin.

How much is there and where is it?

There is a maximum number of BitCoins that can ever be generated and that number is 21 million. The number is expected to peak around the year 2140, according to Khan Academy.

There were 12.1 million BTC in circulation this morning

Your own BitCoins are kept in a file (your BitCoin wallet) on your own storage – your computer. The file itself is proof of the number of BTC you have and it can move with you on a mobile device.

If this cryptographic key file is lost in your wallet, your stash of BitCoin funds will also be lost. And you can’t get it back.

how much is it worth

The value will vary based on how much people think it’s worth – just like “real money” exchanges. However, since there is no central authority trying to keep the value at a certain level, it can vary more dynamically. The first BTC were basically worth nothing back then, but these BTC still exist. On December 11, 2013 at 11:00 a.m., the public value was $906.00 per BitCoin. When I finished writing that sentence, it was $900.00. Around the beginning of 2013, the value was around 20.00 US dollars. On November 27, 2013, it was valued at more than $1,000.00 per BTC. So it’s a bit volatile at the moment but is expected to settle down.

The total value of all BitCoin – as of the end of this sentence – is around 11 billion US dollars.

How can I get some?

First, you must have a BitCoin wallet. This article has links to get one.

Then one option is to buy something from another private party, e.g these men on Bloomberg TV. One option is to buy some on an exchange like Mt. Gox.

And finally, one way is to devote a lot of computer power and electricity to the process and become a BitCoin miner. That is well beyond the scope of this article. But if you have a few thousand extra dollars lying around, you can get yourself quite an investment.

How can I spend it?

There are hundreds of merchants of all sizes that accept BitCoin as payment, from coffee shops to car dealerships. There is even a BitCoin ATM in Vancouver, British Columbia where you can convert your BTC to cash in Vancouver, BC.

And so?

Money has a long history – thousands of years. A more recent legend has it that Manhattan Island was bought for wampum – shells and the like. In the early years of the United States, various banks printed their own currency. On a recent visit to Salt Spring Island, British Columbia, I spent money that was good only on the beautiful island. The common theme among these was an escrow agreement between their users that that particular currency had value. Sometimes that value was tied directly to something solid and physical like gold. In 1900, the US pegged its currency directly to gold (the “gold standard”) and ended that peg in 1971.

Today, currency is traded like any other commodity, although a given country’s currency value may be supported or depreciated by actions of its central bank. BitCoin is an alternative currency that is also traded and, like other commodities, its value is determined by trading, but is not stopped or reduced by the actions of a bank, but directly by the actions of its users. However, its supply is limited and known, and (unlike physical currency) so is the history of each and every BitCoin. Their perceived value, like all other currencies, is based on their usefulness and trust.

As a currency, BitCoin isn’t exactly something new in creation, but it’s certainly a new way of creating money.

Thanks to Steve Burgess | #Bitcoin #quotrealquot #Money

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