Bitcoin is a global public ledger. To join the ledger, you buy bitcoins, after which you can transact directly with anyone on the ledger.
You can stop reading now if you want. This is the fundamental description of bitcoin and all other definitions are a more complicated version of the same concept.
Below are some additional details:
Every bitcoin transaction is publicly recorded and viewable on the ledger. In order to prevent fraud, certain members of the ledger, know as “miners”, record and verify transactions. Miners who perform the most work receive a small amount of bitcoins.
Buying and Selling Bitcoin
One can buy and sell bitcoin in the following ways:
- In Person
Many bitcoins are bought and sold face-to-face. Users often access online marketplaces to find local buyers and sellers. These marketplaces, such as localbitcoins.com, also serve as escrows to safeguard transactions.
Various exchanges, such as Bitstamp and BTC-e, exchange fiat currencies for bitcoins. Due to the regulatory environment, no exchanges currently operate in the United States. (Bitstamp and BTC-e are based in Europe .) US-based companies, such as Coinbase, route buy and sell orders through these overseas exchanges.
A handful of companies have launched bitcoin ATMs that allow users to purchase bitcoins. Bitcoin ATMs have been installed around the world, including in Boston’s South Station and in Austin, Texas.
Users may use bitcoin in a multitude of ways, including but not limited to
- Transacting one-to-one with another bitcoin user.
- Transacting with an online merchant.
Notable companies accepting bitcoin online include Overstock.com (Nasdaq: OSTK), TigerDirect (NYSE: SYX) and Wedbush Securities.
- Transacting with an offline merchant.
Offline merchants usually accept bitcoin by providing a QR code at checkout, which the customer scans with her mobile device.
- Other common uses of bitcoins include:
- Donations: Various charities and political campaigns now accept bitcoin.
- Tipping: it has become commonplace to contribute small donations of bitcoin to bloggers, tweeters and even individuals commentors on websites. Tipping has contributed to the viral spread of bitcoin.
The value of a bitcoin, like the value of any asset, is determined by supply and demand.
The amount of bitcoins on the ledger increases by a small amount every ten minutes. The supply of bitcoins will stop increasing when 21 million bitcoins exist. Currently approximately 12.5MM bitcoins exist.
Bitcoins may be divided into smaller units of value. The smallest unit of value is called a “satoshi”. 1 bitcoin = 100,000,000 satoshies; 1 satoshi = 0.00000001 bitcoin (8 decimal places).
If you understand what was written in this post, you understand Bitcoin better than 99% of the population.