Bitcoin wallet program

You’ve probably heard the buzz about bitcoin in the last few months. The price is up or down, websites hacked, millions made and vanished. It’s all very intriguing, but what exactly is bitcoin?

The answer is complicated, because bitcoin is a lot of things. According the the bitcoin.org website, “Bitcoin is an innovative payment network and a new kind of money.” Let’s break this down and look at what exactly bitcoin is.

A New Kind of Money

Take a step back and think outside the box for a moment about what exactly money as we know it is. Dollars are a medium of exchange, or a unit of account. If you buy a loaf of bread from me for $1, I have $1 more and you have a loaf of bread. In this example, the transfer of money took place in the form of a physical bill or coin that we both agreed was equivalent to one loaf of bread.

With the advent of banks and cheques, and more recently debit cards and online banking, most of our money exchanges don’t involve any physical cash. In fact, if the dollar was being invented today, would it really make sense to print physical bills?

Bitcoin is that new start. There are no physical bills but rather a public ledger of who has which bitcoins. And here’s the kick: there will only ever be 21 million bitcoins.

Money has always been a matter of faith. Faith in the fact that someone else will take it. Faith that the bill isn’t counterfeit. And most importantly, faith that the issuing agency (ie the government) won’t print too many of them. Zimbabwe and Venezuela are the two current hyperinflation examples but they are walking in well worn footsteps.

Bitcoin is not a matter of faith in the government of the day. Bitcoin is an open source currency controlled by millions of computers and backed up by cryptography. Twenty one million is the limit and they will be created at a known rate until year 2040 (more on how they are created later).