I read a lot of science fiction. It’s not all I read, but there’s something in thinking about the future and what might be possible that really clicks with me. So in 2011, when I heard there was a real thing called a “cryptocurrency” and I could own some, I sent $50 to a now infamous company, Mt. Gox, and purchased 18.1358063 bitcoins.

As of my writing this, I can sell those bitcoins for about $9,000. It’s the best investment I’ve ever made. Or rather, the luckiest investment I’ve ever made, because I can honestly say I had no idea the thing I was buying would be worth anything three years later.

And I have no idea what those bitcoins will be worth three years from now. No one really does. For every believer predicting $1 million per bitcoin, there’s someone on the other side of the fence labeling the whole thing a bubble or mirage.

The only certain thing is that there is a tremendous amount of uncertainty around bitcoins, with very large potential profit or loss for anyone thinking about owning some.

But while I can’t tell you if investing in bitcoins is good for your long-term retirement plans, I can tell you a little bit about them, and how to purchase and store them safely should you wish to take the plunge.

First, watch Money Talks News founder Stacy Johnson‘s video report, then read on for more details.

Watch the video of ‘Bitcoin for Dummies’ on MoneyTalksNews.com.

What are bitcoins?

It might be simplest to think of bitcoins as a digital commodity, like electronic gold. They can be bought and sold, traded and taxed, divided or combined, or squirreled away for a later date. If one day someone discovered a previously unknown precious metal that could somehow be sent over the Internet, that’s bitcoin.

But Bitcoin is also the network of its users, who together build and distribute a collaborative record of who owns which bitcoins. No single person is in control, complex mathematics ensure that no one needs to be, and more than $5 billion is currently accounted for within the system.

Are they risky?

Oh, yes. At this point, bitcoins are so new that no one knows if they’ll be the predominant currency of the future or end up as just another item in the long list of promising technologies that never took off. That uncertainty means the value of a bitcoin can change dramatically.

In one recent price swing — prompted by reports of a Chinese bank crackdown on bitcoin exchanges — the value of a bitcoin went from $444 on April 10 to $356 on April 11 to $437 on April 12. Now that’s volatility!

So if you are going to purchase bitcoins, do not invest more than you can afford to lose. It’s entirely possible every penny you’ve put in could evaporate tomorrow.

But despite the seemingly insane risk, money is flooding into Bitcoin because the potential upside, being among the first to invest in a brand-new currency, is so great. Predictions on the future value of a bitcoin extend all the way up to $1 million.

What are bitcoins good for?

Right now, you can use bitcoins to purchase almost anything, though not necessarily from anywhere. The number of merchants accepting them as payment is small. Depending on where you live, there might not be any local businesses taking them (you can find out on this map), and even if you find one that does, the cashier might not be trained to use them, making the whole process a giant hassle.

Since bitcoins can’t be refunded by a third party like your credit card company, you’ll have less recourse in the event a business you’ve paid cheats you or doesn’t deliver what it promised.

And the potential for your bitcoins to appreciate in value means you might not want to spend them, anyway.

So why go through all the hassle of using bitcoins? Why not just use a credit card?

Discounts. When you purchase something with a credit card, 2 or 3 percent of the purchase price gets sent off to the credit card company as a swipe fee. Retailers know that they have to pay these fees, and so typically increase the price of whatever they’re selling by 2 or 3 percent to compensate.

With bitcoins, transaction fees are optional, though recommended. The currently suggested fee works out to about half a cent, whether you’re purchasing socks or a house.

This means that retailers that do accept bitcoins often provide discounts to those who pay with them. Gyft, which allows you to purchase gift cards for hundreds of major retailers and store them on a smartphone app, offers 3 percent off through its rewards program when you buy with bitcoins.

Story continues