Bitcoin is a digital currency (also called crypto-currency) that is not backed by any country's central bank or government. Bitcoins can be traded for goods or services with vendors who accept Bitcoins as payment.
Bitcoin-to-Bitcoin transactions are made by digitally exchanging anonymous, heavily encrypted hash codes across a peer-to-peer (P2P) network. The P2P network monitors and verifies the transfer of Bitcoins between users. Each user's Bitcoins are stored in a program called a digital wallet, which also holds each address the user sends and receives Bitcoins from, as well as a private key known only to the user.
The Bitcoin network is designed to mathematically generate no more than 21 million Bitcoins and the network is set up to regulate itself to deal with inflation. Bitcoins can be spent by initiating a transfer request from a Bitcoin address in the customer's wallet to a Bitcoin address in the vendor's wallet. As of this writing, one Bitcoin (also called a BTC) is worth $130.09-- but just as with stocks, the value of Bitcoins can fluctuate quickly.
It might be a question for beginners, but the answer to how you can get Bitcoins isn't obvious. Where you live, how technical you are, and what you want to do with your Bitcoins are all determining factors.
There are 4 main ways to get Bitcoin.
Firstly, there are Exchanges, where you can buy and sell Bitcoin for fiat currency (which is Muggle currency like USD and Euros). There are many new options for buying Bitcoin, which will vary depending on where in the world you are. These are changing pretty rapidly, but the main players have remained pretty constant so far.
Second, Bitcoin "mining" remains a primary vehicle of attaining the currency. Bitcoin “mining” has proceeded to increase in difficulty. Currently, the value of BTC is more than keeping pace with this increase in difficulty, but the costs of entry in terms of hardware are high.
Thirdly, you can send and receive Bitcoin, for whatever reason, between individuals, using a Bitcoin Wallet. Again, there are many options for your wallet, which acts as you might expect from the name, as a place to keep and compartmentalise your Bitcoins. You will also need a Bitcoin wallet to spend your Bitcoin from once you have them. You can keep your Bitcoin wallet online (although it might not be as secure as on a piece of your own hardware), on your phone, or on your desktop.
Finally, you can make Bitcoin through content or services offered online. In order to do this, you will need a wallet, and you might choose to use a tool on your site that stores your wallet address as a QR code, to make payments from mobile phones easier.
Bitcoins have great properties for consumer transactions. Low fees mean you can pass the savings on to your customers and get a price advantage over other merchants. There are no chargebacks in Bitcoin, any confirmed transaction is protected by the full hashing power of the network. So businesses can accept bitcoins from any country in the world, with no risk of fraud or chargebacks.
Point-of-Sale (POS) Transactions
In retail stores, bitcoins can be used side-by-side with local currency and credit cards. The merchant will need some type of point-of-sale software, which can calculate the exchange rate. They can generate an address to the shopper and monitor their account to see the payment has been received.
Bitcoin-only merchant tools: AcceptBit.
A full list of available shopping cart interfaces can be found at the Wiki page.
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