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Everything You Should Know About Bitcoin and Other Digital Currencies

By Edited Aug 24, 2016 1 0


Many of us have heard of Bitcoin, but did you know that there are other flavors of digital currency?  From Dogecoin, Litecoin, Mastercoin, and others - the playing field is getting larger as time goes on.  Trying to find information out on the internet on this topic or even related topics can be exhausting, so this article was written with the intention of combining the best of the best information that is out there into one concise, informative, and well-written resource.

What is Bitcoin

Image credit: http://morguefile.com

Virtual, Digital, and Cryptocurrencies and the Origin of Bitcoin

Simply stated, virtual currencies were developed because of lack of trust with financial institutions and digital transactions.  Virtual currencies are independent of traditional banks and will likely one day become direct competition for them.

The European Central Bank defined virtual currency as a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.  From this definition, we can then explain digital currency.  Digital currency is defined as a form of virtual currency that is electronically created and stored.  Some forms of digital currencies are cryptocurrencies, which are digital currencies that use cryptography for security.  This encryption makes it extremely difficult to counterfeit and is actually more difficult to counterfeit than traditional legal tender.

Enter Bitcoin.  In 2008, Satoshi Nakamoto published a paper describing digital currencies.  This same individual (or group of individuals using a pseudonym) launched software a year later that would create the first Bitcoin network and cryptocurrency. 

With nearly 13 million Bitcoins currently in circulation, the general understanding is that there is a fixed limit of 21 million Bitcoins.  The changes in circulation and overall usage will affect the value of Bitcoins.  With this finite limit in mind, a Bitcoin is valued at approximately $495.00 USD as of the writing of this article, but that number does change. 

Good Doge!

Another form of cryptocurrency that has been making its mark is Dogecoin.  If you are familiar with internet memes, you'll recognize this particular digital currency's mascot, Doge.  More than 65 billion (yes, that's billion) Dogecoins have been mined, and because there's such a high number of this type of currency available, they are valued much lower than Bitcoin.  You aren't even reaching $1.00 USD after mining 2,000 Dogecoins at its current value.

Some of the more abstract and unheard of digital currencies are Litecoin, Peercoin, Ripple, Mastercoin, and Namecoin.  Litecoin is a peer-to-peer internet currency that is open source and fully decentralized.  The Litecoin network is slated to produce 84 million Litecoins, which you will notice is four times the amount of currency units as Bitcoin.

How to Get Bitcoins, and Who Regulates Bitcoins?

Bitcoins are decentralized, but there are different laws that vary by country.  Governments may try in the future to come up with some specific regulations on digital currencies, but aside from general guidelines, there isn't much else that has been pushed forward yet.

The main ways to get Bitcoins is to buy them on an exchange, accept them as payment for products and services, or mine them.

You'll need a Bitcoin wallet to get started.  There are many websites where you can download an app on your phone or computer to store Bitcoins.  To store the Bitcoins, you will either utilize a desktop wallet, a mobile wallet, or a web wallet.  The differences between the three are primarily how and how often you should back them up, how they allow you to pay (mobile wallets allow you to scan a QR code or tap to pay), and where they are stored.  You do need to be aware that regardless of which option you choose for your wallet, Bitcoins can be stolen (just like any other currency).  Without a centralized bank to insure your Bitcoins against theft, there is absolutely no way to recover from the losses.

Mining for Bitcoins sounds a little like mining for gold, but you're using your computer.  GUIMiner is a graphical front-end for mining Bitcoins.  It supports both pooled mining and solo mining.  The basic way that it works is to look for special number combinations that will unlock a transaction.  The speed at which you can mine is ultimately dependent upon how powerful your computer is, and mining all day could drive up your energy bill.  It's generally recommended these days to join a mining pool, where there are miners from all around banding together to combine the power of their computer systems and sharing profits between participants.  Slush's Pool is the most popular mining pool, and you can find the website by doing a quick Google search.

In Conclusion

Bitcoin is a consensus network that enables a new payment system and a completely digital money format.  It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.  It is simply like "cash for the internet."

While the proof of concept was only laid out around five years ago, Bitcoins have increased in popularity in a very short time frame.  Various other open source and peer-to-peer currencies have entered the market because of the popularity of Bitcoins, and there will likely be more to enter as time goes on.  The number of developers working on Bitcoin helps to ensure its continued contributions to the project overall. 

There is no official ownership of Bitcoin or any of the other digital currencies mentioned in this article.  It is all essentially controlled by its user base spanning the entire globe.  Developers work to improve the software, but in the end, the software can only work correctly with a complete consensus among all of its users.

With all of that said, Bitcoins aren't for everyone, obviously.  However, if this article has peaked your interest, I would suggest doing a little more research if need be to grasp the big picture and potential of Bitcoins (or any other form of digital currency).  You'll find some helpful links to various resources included in my signature for this article.



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