bitcoin-101

Bitcoin 101: A Simple Explanation

There has been so much talk globally about bitcoins, many may be wondering what the heck they are and how people get them. While the simplest answer is bitcoins are a form of digital currency, that likely means nothing to a large number of people.

Bitcoin currency consists of four denominations, with the largest being one bitcoin (BTC), followed by a milicoin with a value of 0.001 BTC. One step below that is a microcoin with a value of 0.000001 BTC, and the satoshi, the smallest denomination has a value of 0.00000001 BTC.

You keep bitcoins in a digital wallet. When you want to buy something, you log into your account and transfer the bitcoins from your wallet to the account of the person or business you are buying from. Bitcoins aren’t backed by any government, they’re not backed by Gold or any other commodity. The value of bitcoins are supply and demand driven.

How do I get Bitcoins?

If you sell something online, one of the most logical ways to get bitcoins is to accept them as a payment method using a bitcoin payment processor. There are a number of options out there, Coinbase is a good example. Similar to using paypal or authorize.net, you integrate it using API’s into your checkout process, allowing your customers to “check out” using bitcoins. If you use wordpress, Stripe recently announced that they are integrating bitcoin payments along in their credit card processing plugin.

Mining for Bitcoins

Mining for bitcoins is simply donating  CPU time to compute these hashes in order to maintain the public ledger. The person who computes the latest block chains is rewarded with bitcoins. This is called bitcoin mining.

While all transactions and wallet addresses are recorded in a public ledger, the keys needed to access funds are private, which ensures that only you have access to your bitcoins. Each bitcoin transaction is verified by a software program that generates an SHA-256 hash, which is sent to the public block chain. Once it’s in the block chain, it is confirmed that the money has been left at your address.

Anyone can mine for bitcoins although it’s becoming more difficult to do so with each bitcoin mined. You need to download a mining program that will begin crunching numbers. GUIMiner is one of the most popular mining programs for new users because it’s one of the few applications with a graphical interface that has you mining in a few clicks.

To see more bitcoin startups and explore further, check out our bitcoin directory.

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