You keep hearing about them, but what exactly are bitcoins and how do you buy, sell and trade them? Read on for finder.com’s definitive guide.
Referred to as the currency of the internet, bitcoin was established in 2009 as a peer-to-peer currency network that enables new people to transfer funds in the digital space. Bitcoin has taken the decentralized and user-centric ideas that have long-defined the internet and created a payment system void of central authorities, resulting in savings for those who use it.
Bitcoin is the world’s first start-up currency and is still in the early stages of its development. As a currency, the value of bitcoins depends on the current conditions of the bitcoin network and therefore its value can be volatile.
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How does bitcoin work?
For users, bitcoin works just the same as any other currency. Just like when you use your credit card or a transfer for an international transaction, when you use Bitcoin you are sending a certain currency digitally to someone else. Bitcoin gives each user a ‘digital wallet’ whereby they can store, send and receive bitcoins.
The bitcoin network works by using a public ledger called the ‘blockchain’. This ledger contains all processed transactions which is used to check a transaction’s validity, which can be done using digital signatures.
The value of bitcoin is established much the same as any other currency, with the exact value depending on the number of people using bitcoin and the number of bitcoins in circulation. The value of bitcoin can also be affected by relatively small events, trades or business activities.
Who uses bitcoins?
Although it’s a digital currency, a wide range of businesses who exist both online and offline use and accept bitcoin. Bitcoins can be used to make payments online and in physical stores and any user can make these payments as long as they have the recipient’s address. There is also no need for a merchant account to be set up in order to receive payments.
How do I buy bitcoin?
There are four ways to get bitcoins:
Receive bitcoin as payment for goods and services
Any business or individual can accept bitcoins as payment—all they need to have is a bitcoin digital wallet. The advantage for merchants is that bitcoin transactions are secure, irreversible and do not contain a customer’s personal information which protects losses caused by fraud. Using bitcoin for business is becoming popular due to lower fees and fewer admin costs, as well as being able to expand to markets where credit cards are unavailable or there are high rates of fraud.
Purchase bitcoin at an exchange
There are several bitcoin exchanges available in countries across the world. In the U.S., there are bitcoin traders that allow you to purchase the currency using over the counter transfers, cash deposits or bank transfers. These merchants charge varied percentage amounts for their services, usually between 1-2%.
Exchange bitcoin with someone near you
You also have the option to buy bitcoins locally through LocalBitcoins.com. You can select your city and country and find people selling bitcoins and at what rates. There are a variety of sellers who are linked to different local banks and will sell bitcoins through transfers, cash deposits or other online payments. This site currently trades coins in 215 countries, including the U.S..
Earn bitcoin through competitive mining
Mining is the process of generating bitcoins with a computer. In essence you use your computer to help add transactions to the bitcoin public ledger. In return you’re paid transaction fees and a subsidy of new bitcoins. Anyone can process transactions using specialized hardware and software. Mining bitcoins is deliberately difficult to keep the number of coins in circulation at a steady number.
Where can I buy, sell and trade bitcoin in the United States?
Bitcoins are readily available in the U.S. for those who want to purchase them. Bitcoin has various affiliate programs through which users can buy, trade, earn and spend bitcoin. Types of affiliate programs can include:
- Forex. Users can use bitcoins to trade and make investments.
- Bitcoin exchanges. Purchase bitcoins using different currencies, including the U.S. Dollars.
- Buy bitcoin through an online service. You can buy bitcoins from a physical location or online transaction by referring customers, deposits or betting addresses. This system is commission-based.
- Advertising. You can pay users in bitcoin to visit sites, or you can earn bitcoins by monetizing online content.
- Gambling. You can use bitcoin to play in online gambling games, or be paid in bitcoins for your winnings.
- Mining. As explained above, you can earn bitcoins by validating bitcoin transactions online.
- Domain hosting. You can use bitcoin to register a domain name.