What is Bitcoin?

Question

I'm a programmer, and a generally smart person, but I can't understand really what bitcoin is.

• Is it a new payment merchant like PayPal?

• Is it a virtual currency like LindenDollars that can't be really used as money? (put money In, but not Out)

• Is it a new currency system, where people exchange bitcoin addresses instead of real money?

Answer 1

Is it a new payment merchant like PayPal?

No.

PayPal is a company, Bitcoin isn't.

PayPal deals with existing currencies like US dollars, Bitcoin doesn't.

PayPal holds your balance for you, can freeze your account, and can stop you sending your money to people it doesn't like. With Bitcoin nobody can freeze your account or tell you how to spend your bitcoins.

Is it a virtual currency like LindenDollars that can't be really used as money? (put money In, but not Out)

Whether it is a currency or not isn't clear, but it is virtual. Some say it's more like a commodity than a currency. It acts a lot like gold, in that there is a finite supply of it, it's valued by some people, and it can be used as money anywhere that accepts it. Also it can be bought and sold for US dollars and many other currencies. At the time of writing 1 bitcoin is worth 4.70 USD, and there are plenty of people willing to buy them from you at just under that price, or sell them to you at just over that price. The price is decided by the market; it trades at whatever price people think it is currently worth.

Is it a new currency system, where people exchange bitcoin addresses instead of real money?

It acts a lot like a currency, and can be used to trade with anyone who accepts it. It is very cheap to transfer between any two points in the world, and very fast compared to transferring US dollars or other currencies.

See this introductory video for a slicker introduction.

Answer 2

It's a distributed digital cryptocurrency. The key word here is distributed, i.e. there is no central authority, instead transactions are handled peer-to-peer with a complex protocol where everyone ensures no one cheats.

New bitcoins are created at a predetermined rate to people who run "miners", which are a vital part of the protocol that checks for transaction genuinity.

You can exchange bitcoins with other hard currencies using public exchanges such as Mt. Gox. You exchange them with other people willing to sell or buy them, just like on a stock exchange.

For more details: http://www.weusecoins.com

Answer 3

• Bitcoin is no payment merchant like PayPal, as it is no company but an open source project and a community of users connected in a completely decentralized P2P network. It can act as a payment service similar to PayPal, but you have no intermediary and transactions are irreversible and (for the most part) free of charge. Also, Bitcoins are not on some online account that can be frozen, but only on your harddisk (similar to cash in your wallet).

• Bitcoin is a virtual currency as it has no physical form (it's just information in the form of cryptographic keys). It can however very well be used as money in the real world and is actively exchanged for various fiat currencies or products and services (obviously in both directions).

• It is a new currency system where people exchange Bitcoins instead of traditional fiat money. Unlike the latter, it is however not backed by any government or corporation. Therefore it has a floating exchange rate only determined by supply and demand. In this respect Bitcoin is also similar to commodities or for example precious metals.

Answer 4

There are a couple of books on Kindle that might help you get started. The best way to really understand Bitcoins is to create a wallet and fund it with a few Bitcoins then use them.

To start safe and securely check this book on Kindle out: http://www.amazon.com/dp/B00A1CUQQU