You must’ve heard about Bitcoin. Luckily, it isn’t as complex as it sounds. There are times when you need to do a transaction online. You have to make a payment online which can be done through numerous ways such as credit cards, PayPal, etcetera. It does not matter if you’re buying a virtual item (for example, a theme for your blog, or a domain), or a physical item that will be delivered to your doorstep, you have to pay physical, tangible money. Wouldn’t it be great to have a virtual currency that’s solely for the internet? That’s where Bitcoin comes into the game.

Bitcoin is a digital currency, but it has a system of its own. Unlike real currency, it is decentralised. It is a peer-to-peer (P2P) system, which means payments made using bitcoins are direct, without any person/agency acting as the middle-man. Users have a Bitcoin ‘wallet’ in which their bitcoins are stored, which is used to send and receive bitcoin payments. But if there’s no one in the middle, where do bitcoins originate, and who takes care of the transactions? It’s the Bitcoin generation community. The particular term used for such users is ‘miners’. These are servers that run a special program (using a rather special hardware package), and does all the transaction analysis, and as a reward, these users get (generate) more bitcoins. But the generation is based on a predefined algorithm, and the amount is predictable and limited. Moreover, there’s a limit to which bitcoins will be generated (21 million). According to an estimate, this limit will be achieved in 2140, and bitcoins will not be generated any further. Bitcoin isn’t like a physical coin (means you won’t always have bitcoins in whole numbers). Bitcoins are divisible to 8 decimal places, so a single coin is broken down into several smaller units. The amount of bitcoins that you own is denoted by BTC.

Bitcoin was introduced by (someone with the alias of) Satoshi Nakamoto in 2008. The person/group behind this virtual currency is still unidentified. Bitcoin is an open-source project, which means everyone can take a look at the code and see how it works. On the other hand, it provides loopholes for hackers and other elements with harmful intentions to exploit, since Bitcoin makes excellent use of cryptography. Every transaction is secure and direct, and recorded in the ‘blockchain’, a public record of every Bitcoin exchanged so far. Bitcoins can be sold in return for physical currency as well (the exchange rate keeps fluctuating like other currencies; just Google ‘Bitcoin exchange rate’). This encourages people to invest in it, and hence Bitcoin is often referred to as ‘digital gold’. But there’s a catch, you cannot buy bitcoins directly (most of the time, unless someone trustworthy is actually willing to sell some to you).

Bitcoin has many advantages over physical currency, including the fact that it is unaffected by inflation. It is highly invulnerable to theft (unless someone physically knows your password), but it certainly isn’t 100 per cent secure (like everything else on the web). Thanks to cryptography, every user’s Bitcoin wallet is secure and someone cannot just hack into your wallet and steal your bitcoins. Bitcoins are impossible to be counterfeited or reused. Despite all these advantages and differences, Bitcoin transactions work pretty much like cash.

Bitcoin might be the best digital currency on the web, but it’s certainly not the only crypto-currency. A prominent alternative is ‘Litecoin’, which is essentially the same as Bitcoin, except for the aspect that it handles transactions faster than Bitcoin. There are different opinions on the security aspects of Litecoin, compared to Bitcoin. Some say it is more secure, while some have a totally opposite view. Apart from that, there’s another digital currency by the name of ‘PPCoin’ (Peer-to-Peer Coin), and in simple words, it is more secure compared to Bitcoin. The only difference is the fact that it has a centralised checking system for verifying transactions, unlike Bitcoin, which is decentralized in this aspect, and transactions are direct. There are several other alternatives, based on pretty much the same concept as Bitcoin.

We’ve been talking about Bitcoin till now, but you might be wondering, if you have a digital wallet with some bitcoins, where can you actually spend them? There’s a link in The Sites section, which links to different sites, categorised with respect to the amount that you’re willing to spend. These online shopping sites accept bitcoins as payments, and you can buy almost anything from them. From clothing to computer accessories, you name it. It’s interesting to see how you can buy so much with this virtual currency.

But despite all this, there are mixed views on whether Bitcoin can be considered as a safe currency or not. The exchange rates keep fluctuating. Despite it being called ‘digital gold’, there are still doubts whether it will yield as much profit as you would expect, if you’re looking into the trading aspect of Bitcoin. Although Bitcoin is a decentralised currency and exists only on the web, it is definitely putting an impact on the real world as well. As the financial crisis and inflation in physical currencies rise, it’s obvious that governments will turn to Bitcoin, and question its existence (or even worse, pull the plug on its usage).

If you are interested in getting your hands on Bitcoin, it’s simple to set up. Go to Bitcoin.org, and download a digital wallet. There are different types of wallets available; you’ll get a description of every wallet that’s available. Once installed, it’s time to get some bitcoins in. Usually, the best way is to visit Bitcoin faucet for some initial free coins (but the Bitcoin faucet is unavailable as of now, unfortunately). And mining would be an extremely resource consuming task which you cannot do on your regular PC or laptop, it requires specialised hardware. So your best bet would be to buy your first bitcoins from someone you trust, or buy them from an exchange.

Once you have some bitcoins, you can start using them, or just save them, and sell them when the exchange rate goes up. That’s the power of the digital world, better not underestimate it!