Bitcoin - Basics

Bitcoin is a digital currency created in 2009 (Satoshi Nakamoto).

Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government issued currencies.

 

There are no physical Bitcoins, only balances associated with public and private keys.

These balances are kept on a public ledger, along with all Bitcoin transactions, that is verified by a massive amount of computing power.

 

BREAKING DOWN 'Bitcoin'

 

Bitcoin balances are kept using public and private "keys," which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them.

·         Public key (comparable to a bank account number) serves as the address which is published to the world and to which others may send Bitcoin.

·         Private key (comparable to an ATM PIN) is meant to be a guarded secret, and only used to authorize Bitcoin transmissions.

 

 

 

Style notes: According to the official Bitcoin Foundation, the word "Bitcoin" is capitalized in the context of referring to the entity or concept, whereas "bitcoin" is written in the lower case when referring to a quantity of the currency (e.g. "I traded 20 bitcoin"). The currency can be abbreviated to BTC or, less frequently, XBT. The plural form of the word can be either "bitcoin" or "bitcoins."

To learn more about this cryptocurrency, check out How do I buy Bitcoins?

 

 

What is Bitcoin?

In non-technical language, Bitcoin is a digital currency in which transactions can be performed without the need for a credit card or central bank.

It's designed to enable users to send money over the Internet in a very simple and efficient way.

 

Who runs Bitcoin? What is the company behind Bitcoin? 

In short, no one runs Bitcoin.

Bitcoin is run collectively by the users who uses the Bitcoin Client, and any changes to the Bitcoin system have to be approved by the majority of users before they are implemented. 

 

What is a Bitcoin address?

A Bitcoin address is a unique identifier which allows you to receive Bitcoins.

With PayPal you send funds to an email address, and similarly with Bitcoin you send funds to a Bitcoin address.

For example, this is one of our Bitcoin addresses:  1JArS6jzE3AJ9sZ3aFij1BmTcpFGgN86hA

Please verify that you have copied the destination address exactly before sending Bitcoins to it.   Bitcoin transactions are not reversible!

 

What is a private key?

A private key is a secret code which allows the user to prove his ownership of his Bitcoins. 

Every Bitcoin address has a matching private key, which is saved in the wallet file of the person who owns the balance.

 

The private key is mathematically related to the Bitcoin address, and is designed so that the Bitcoin address can be calculated from the private key, but importantly, the same cannot be done in reverse.

Please keep your private keys safe, and make periodic backups to prevent the loss of Bitcoins.  Anyone with your private keys can spend your Bitcoins!

 

What are the fees involved?

The transaction is usually free if the sum transacted is greater than 0.01 BTC.

A token sum is imposed to provide some incentive to the miners to include the transaction in the blockchain..

At the moment, many transactions are typically processed in a way where no fee is expected at all, but for transactions which draw coins from many Bitcoin addresses and therefore have a large data size, a small transaction fee is usually expected. Please see the bitcoin wiki for calculating minimum fees.

 

What does 'unconfirmed' mean? 

It means that the transaction has not yet been included in the blockchain, and is still reversible. A transaction typically takes around 10 minutes to be confirmed. When that happens, it is said that one confirmation has occurred for the transaction. With each subsequent block that is found, the number of confirmations is increased by one. To protect against double spending, a transaction should not be considered as confirmed until a certain number of confirmations is seen. 

 

Who are the 'Miners'? 

Miners are individuals who run computer systems to repeatedly calculate hashes with the intention to create a successful block and earn coins from transaction fees and new coins created with the block itself.

The term references an analogy of gold miners who dig gold out of the ground and thus 'discover' new gold that can be used to create new coins, with a similar kind of discovery occurring with a successful hash to create new Bitcoins. 

 

The independent individuals and companies who own the governing computing power and participate in the network, also known as "miners," are motivated by mining rewards (the release of new Bitcoin) and transaction fees paid in Bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network.

 

 

Is there a limit to the amount of Bitcoins generated?

The number of Bitcoins in existence will never exceed 21 million.

To see how many Bitcoins are in circulation, please go to: https://blockchain.info/charts/total-bitcoins

 

One bitcoin is divisible to eight decimal places (100 millionth of one bitcoin), and this smallest unit is referred to as a Satoshi.

If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimal places.

 

How much does a Bitcoin cost?

The current market price for a Bitcoin is always changing due to the supply and demand for it.

Bitcoins are traded at Bitcoin Exchanges. A historical Bitcoin price chart can be found at: https://blockchain.info/charts/market-price

 

What is a Bitcoin Client?

Bitcoin clients are the base level of technology for conducting Bitcoin transactions, and they store the keys needed to conduct a Bitcoin transaction.

They come in multiple flavors, and are customized to fit different niches.

 

1.       The Bitcoin-QT Client (Downloadable at http://bitcoin.org/) is the original software written by Satoshi Nakamoto, the project's founder. If you aren't sure which program to pick, this is a good bet. It is suited for enthusiasts, merchants, miners, developers and people who want to help support the project. 

2.       The MultiBit Client (Downloadable at https://multibit.org/) is fast and easy to use, even for people with no technical knowledge. It is also able to import Blockchain.info's wallet backups (Multibit version 5.17 and earlier), making it a versatile tool for all kinds of users.

3.       The Electrum Client (Downloadable at http://electrum.org/) focuses at speed, with low resource usage and simplifying Bitcoin usage. Startup times are instant because it operates in conjunction with high-performance servers that handle the most complicated parts of the Bitcoin system.

4.       Blockchain.info is also a form of Bitcoin client. We provide a web-based client with emphasis on speed, security, and ease of use.

 

 

 

What is this 'Blockchain' you talk about? 

The blockchain is a Public Ledger of all transactions in the Bitcoin network.

Blockchain.info allows you to navigate the bitcoin blockchain. We also operate Bitcoin's largest and most secure wallet service.

 

Hope this helps.

 

Arun…