If you’ve heard the term “bitcoin” used a gargantuan amount of times in recent months, congratulations – we, too, have an unhealthy addiction to the news. And, at some point, it may have lead you to do this;
(no need for corrections, Google).
If you’re still not 100% sure what it is, how to get involved, how to use it, if it’s legal, etc, then don’t worry. We’re going to give you a crash course in bitcoin.
What Is It? Where Did It Come From?
Simply put, bitcoin is decentralized digital currency. It came to be in 2009, but it took a guy who just wanted some pizza in 2010 to bring the cypto-currency to the “real world”. 10,000 bitcoins and a full belly later, Laszlo Hanyecz would go down in history as the first person to use the currency in exchange for a physical product.
How Does It Work?
Since it’s a decentralized form of currency, there’s no monetary authority that governs it (unlike “traditional” currency where central banks do). When a bitcoin is “mined”, it generates two mathematically related keys (via public-key encryption) in such a way that the encrypting key can’t be used to decrypt a message, or the other way around. The private key is retained by a single person while the other key becomes public. When a bitcoin transaction takes place, the “purchaser’s” public key encodes the payment. The “seller” uses their private key to approve a transfer to the purchaser’s account.
How Is It “Made”?
Bitcoins are mathematically generated as computers in a peer-to-peer network execute difficult algorithms, eventually producing a digital signature as “the coin”. The generation of the “coin”, called “mining”, becomes increasingly difficult over time (this was done on purpose). In fact, there’s a total number that can ever be mined, capping at 21 million. The reason? To prevent a central bank from flooding the market, which would devalue the bitcoins that are already in circulation. There are some physical bitcoins that have been created, however, and this is generally done by placing the unofficial logo onto some kind of material, such as plastic, metal or even wood and paper.
Is It Secure?
You will hear different things depending on whom you speak to. As a digital currency, the security of a transaction is governed by modern cryptography, specifically, public-key encryption. However, there is ample record of bitcoin theft. Additionally, there is little to no anonymity when using bitcoins. Everything can be traced back, so if you’d prefer to stay completely private with your transactions, this might not be the currency for you.
Is It Considered Legal Tender?
This is a trickier one to answer. In some countries, federal governments are keeping a close eye on it’s usage in transactions. However, when it comes to being accepted as tender, it often comes down to the business owner (generally, bitcoin payments are used with smaller vendors).
What Companies Accept Bitcoin Now?
Want to go into space? Virgin Galactic will accept the digital currency for a ride into the stars. Need to upgrade your blog but don’t want to submit your credit card information? WordPress accepts bitcoin as payment. Don’t want to brave the -40C weather for dinner? Foodler.com is expanding to Canada, and will accept bitcoin as trade for delicious things you can consume. The number of vendors willing to accept bitcoin in exchange for goods & services is likely to grow, especially in Canada, where it’s considered “legal”. The same rules apply to bitcoin as do to “normal” income.
Can I Get a BitCoin Loan? Or Repay a Loan with bitcoins?
The whole “decentralized” aspect of the currency might make this a bit difficult. But, you never know.
