Stupid Question 140: Digital money – really? Yes What are Bitcoins?

[To celebrate my first year of programming I will ask a ‘stupid’ questions daily on my blog for a year, to make sure I learn at least 365 new things during my second year as a developer]

What Bitcoins are? A form of dgital currency.
Bit-what?

Never heard of it.

Let’s have a look!

Bitcoins is a digital currency, an idea developed by Satoshi Nakamoto based on an open source protocol. There is no central issuer and it is exchanged through a website that manages your digital wallet , or directly in a digital wallet. There are also physical versions (casascius.com). Bitcoins allows 100% anonymous transactions, you do not need to provide personal information and there is no central authority involved. The same transaction cannot be done twice (double spending) as all transactions are tested and compared to previous transactions which only have a transaction ID and the amount.

More information about Bitcoins:
Bitcoins Wikipedia
Getting started with Bitcoins
Demonstration Bitcoin Wallet
Where to spend your
Physical Bitcoins by Casascius

Comments

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Olle Kullberg

2/2/2013 9:02:35 AM

One thing that sould be told from the start is that Bitcoin is more or less inflation free. With the current software run by a majority of users there will never be more than 21 million BTC. 

How does that work?

It works because it is possible to transfer a very small fraction of a Bitcion, so no matter how much 1btc is worth it will always be possible to transfer say $1.

Why should you care?

If you want to invest in BTC, just buy some and see them rise in value when other currencies inflate away, i.e. GOOD ;o)

Iris Classon

2/2/2013 9:10:09 AM

Reply to: Olle Kullberg

Very good point! I actually will set up a wallet, I'm very intrigued by this!

Cristian

2/2/2013 9:21:31 AM

Not really true that they are inflation free, they are affected when you want to buy stuff for them, and have its own problems like the one in 2011..
http://www.forbes.com/sites/timothylee/2011/08/07/the-bitcoin-crash/

And just because the bitcoins gets harder to mine because of the "roof" the price of actually mining them will be more then the bitcoins are worth, and if no one actually mines bitcoin the transactions when you buy stuff wont have a server backend to use... 

But its a cool idea...

Olle Kullberg

2/2/2013 1:52:44 PM

Reply to: Cristian

@Cristian

If you use the original meaning of inflation: monetary expansion, then Bitcoin actually will be free of inflation once 21 million BTC has been reached.

At this point there will be no more Bitcoins to mine, just as you said, but when this happens a fee can be added to the transaction so that servers calculating the blocks will get paid.

The theory is solid, except for one thing: Bitcoin can not handle a MASSIVE number of transactions.

/cheers

Cristian

2/2/2013 3:12:31 PM

Reply to: Olle Kullberg

True, not monetary expansion. But the "Value" of bitcoins are not stable.. 
And if I have understood correctly 21 million BTC will not probably be mined because of the cost of mining is going up for every bitcoin mined....

It would have been nice to get a few bitcoins in the beginning though....

Last modified on 2013-01-31