Can you help me understand Bitcoin?
December 3, 2013 10:53 AM   Subscribe

I don't understand what Bitcoin is. Please try to describe what they are to me in the simplest terms possible. I'm afraid that I don't understand how computers work well enough to understand Bitcoin. If this is true, I want to figure out where I need to fill in my knowledge gaps. I know that Bitcoin is a virtual currency, but what IS a bitcoin? What are the adjectives that describe this noun?
posted by josher71 to Computers & Internet (8 answers total) 22 users marked this as a favorite
The Bitcoin FAQs are pretty good.

Reddit Explain Like I'm 5 ("ELI5") thread on Bitcoins.
posted by melissasaurus at 10:59 AM on December 3, 2013 [2 favorites]

The "How Bitcoin Works" episode of Stuff You Should Know.

Not 100% accurate, but it's a great introduction to the core concepts.
posted by griphus at 11:01 AM on December 3, 2013 [1 favorite]

Each bitcoin has a unique serial number. New bitcoins are "created" (by solving that mathematical puzzle) at a steady rate. People have digital "wallets" that store these bitcoins, and they shuffle the coins back and forth as payment.

To purchase a bitcoin with real dollars (in lieu of solving that mathematical puzzle yourself), you have to make a wire transfer to one of their banks. Some guy at slate wrote about the experience.
posted by St. Peepsburg at 11:45 AM on December 3, 2013

Mt Gox, the largest Bitcoin exchange (where you buy and sell coins) has created which has a nice easy to read tutorial. Best one I've seen yet.

Read this first before delving into the "really hard math problem" stuff.
posted by JoeZydeco at 11:45 AM on December 3, 2013

Near as I can tell, a long string of numbers.
posted by Jacen at 1:44 PM on December 3, 2013

The Planet Money episode on Bitcoin was pretty good, as I recall.
posted by newrambler at 2:44 PM on December 3, 2013

Well, a Bitcoin is data on a hard disk somewhere. You, as the owner of a Bitcoin, don't actually store that data. You only have the keys to that data, which are basically unique codes that look like long strings of letters and numbers. Those are stored in a digital wallet (a computer program that is a Bitcoin client) on your computer. Those keys are your only connection to the Bitcoins, if you forget or lose the password to the digital wallet, the Bitcoins are gone forever. Similarly if you damage or lose your hard disk where the keys are stored, as happened in the UK recently.

The data is only valuable because we assign some arbitrary value to it. Intrinsically it does not possess any, like say gold. You can think of it just like of any other data, a .jpg or .doc file for example. The mathematical system of the Bitcoin is designed in such a way that there is a maximum of 21 million Bitcoins (not value, just pieces).

At the beginning it was easy to generate Bitcoins. The solutions to the mathematical problems required in order to mine (generate) Bitcoins were less complex. One answer upthread might be a bit misleading, because one mathematical solution does not equal one Bitcoin. It is actually a so called block that is "found" when the mathematical problem is solved. One block contains multiple Bitcoins. The number of Bitcoins per block decreases by 50 % every 4 years. The system is designed to make mining harder over time.

As more Bitcoins have been mined the complexity of those mathematical problems increases, thus the hardware required for production becomes more powerful and specialized. At the beginning regular home computers could solve those problems (using a special software for Bitcoin mining). Whatever the hardware used and regardles of the complexity of the problem, the outcome is the same: just some data. Currently there are more than 12 million Bitcoins (pieces, not value) in existence. The last Bitcoin is said to be mined in 2140.
As a Bitcoin is just a bit of data, it can be broken down in many more pieces than currencies we are currently used to. Like: 1, 0.01, 0.001 or even 0.000 001 and so on.
posted by travelwithcats at 3:43 PM on December 3, 2013

Here's a pretty video that explains it.
posted by mooza at 8:15 PM on December 3, 2013

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