What is Bitcoin?
Bitcoin is a digital currency which is maintained through a peer-to-peer network.
For the causal day-to-day user you can skip this page and go to our benefits of Bitcoin page to learn the basic reasons to use bitcoins. In the same way that one does not need to understand complex international derivative markets to spend a 100baht note; one does not need to understand the complexities of bitcoin to use it. However if you are interested in the workings of Bitcoin please read on.
Let’s start with an example:
You get paid 1,000baht for selling sodas. You go to Bangkok Bank and open an account; depositing your 1,000baht note. The bank writes down in their account ledger that you now have 1,000baht in your account.
With Bitcoin things work differently:
You download a bitcoin wallet program, which generates you a unique “address”. You sell sodas and people use their bitcoin wallet program to send coins to your address. Instead of a bank recording your balance in their account ledger, the digital ledger is copied millions of times and given to everyone who uses bitcoin. This copied ledger, known as the “block chain” contains the data for every Bitcoin transaction ever made, so anyone can verify which addresses have coins.
With fiat (normal) money it is printed by the government and distributed to bank and in turn distributed to the population.
Again Bitcoin works differently; new bitcoins are brought into circulation at a predetermined rate and given to “miners”. A miner is anyone who chooses to run Bitcoin mining software on their computer. The mining software processes transactions through the network and adds the transactions to the blockchain; in exchange for running this software the miner is occasionally rewarded with newly generated bitcoins.
Initially it was very easy to receive bitcoins from mining, but as the number of miners and the number of bitcoins in circulation has increased the chance of receiving bitcoins from mining has become much lower.
When transferring normal currency to someone else’s bank account, or paying someone with a credit card, the banks involved in the transfer will charge you (or the recipient) a fee.
With Bitcoin you choose the amount of the fee that you want to include with the transfer, or you can choose to pay no fee at all. The fee is given to the miner who processes your transaction. The higher the fee included with the transaction, the higher priority the transaction is given within network, and the sooner the transaction will be processed and recorded into the blockchain.