So, I first heard of bitcoins a few years ago and didn’t wrap my head around them at that time. (STUPID ME)
I decided to learn more about them late last year. I had lots of questions myself, and hear them from others, so I want to try and answer some of them from my viewpoint.
Questions that confused me:
- What are they?
- First, realize that they are not physical coins. They are digital tokens (for lack of a better word)
- These “coins” are generated through mathematical algorithms at a predetermined pace, currently 25 about every 10 minutes.
- Over time, the amount created will be reduced. Actually, they are cut in half every 4 years. At the beginning, they were generated at 50 coins every 10 minutes.
- How are they generated?
- They are generated through “mining”. It’s analogous to gold mining.
- I recently heard a great analogy. If you play Sudoku, you know that the puzzles can be hard to solve, but very easy to verify. This is the key, hard to solve, easy to verify.
- So every 10 minutes (or so), a kind of computer puzzle is generated. Thousands of computers around the world try to solve it. The first computer to solve it correctly, receives the prize (currently 25 bitcoins). As computers get faster, the puzzles are made more difficult, to try and keep the rate at 1 puzzle every 10 minutes.
- Should I get into mining?
- As it turns out, the answer is really no. Most miners are using very high end computer equipment, running specialized hardware for this.
- If you do, you should participate in a mining pool, so even if you don’t solve the puzzle, you receive a portion of the prize.
- If I don’t mine, how do I get them?
- Turns out easily. Buy them with USD. Just like you get Japanese Yen, Mexican Pesos, Euros, etc…
- There is an exchange rate, so you can exchange money for bitcoins
- Barter or Sell stuff. Just like other currency, it’s only worth what someone else will give you for it.
If you are a merchant selling good and services, why would you not accept this currency? The most usual reason is that merchants don’t know what bitcoin is and they are concerned about the exchange rate screwing them up. The fact is that as a merchant, you may already be dealing with this very issue. Your payment gateway may accept Japanese Yen from your customer and turn it into US Dollars for you, without you even knowing. You can do the same with BitCoin. Coinbase is currently the largest exchange for bitcoin. You can think of them just like PayPal, but for this new digital currency.
Furthermore, there are more and more businesses accepting bitcoin as a form of payment. You can find local businesses through coinmap.org if you are interested. I’ve seen articles from other people that have tried to live solely on bitcoin, and mostly successfully. There are some obvious restrictions right now, as not everyone will accept them.