What is a bitcoin?
The virtual currency enables direct payment over the Internet between two individuals by skipping the middle man, such as a bank or credit card company. Bitcoin transactions — with fees that are much lower than what financial institutions charge — rely on cryptography to prevent double spending, counterfeiting or theft. Read related article.
HOW DO YOU BUY A BITCOIN?
1. Before a bitcoin can be purchased, a user must install a virtual “wallet” onto a personal computer or mobile device. The wallet, which is similar to personal finance software, keeps track of your bitcoin balanceand all transactions.
2. To buy a bitcoin, real money must either be deposited through an online payment company or transferred directly from a bank account into an account on a third-party Web site that connects bitcoin buyers and sellers.
3. Once the funds are available, a buyer can place an order for a bitcoin, similar to trading stocks, through an exchange such as Bitstamp.
4. Bitcoins can also be purchased from third parties such as BitInstant, which sends the coins directly into the virtual wallet.
WHAT CAN YOU DO WITH A BITCOIN?
Bitcoins can be used to buy from online vendors, such as George’s Famous Baklava in New Hampshire, which sold a dark chocolate pastry for 14 bitcoins in 2011 — worth over $7,600 on Feb. 24. Bitcoins are also being bought and traded as investments.
In 2008, “Satoshi Nakamoto” (a pseudonym for a person or group whose identity is a mystery) wrote a paper outlining Bitcoin’s design. The rules state that the number of bitcoins in circulation will grow at a decreasing rate toward a maximum of 21 million coins. The currency is now maintainedby an open-source community that has no centralized authority that regulators can target. Currently, nearly 12 million bitcoins are in circulation.
SOURCE: bitcoin.org; blockchain.info; MIT Technology Review. GRAPHIC: Bill Webster and Todd Lindeman - The Washington Post. Published Nov. 14, 2013.