A briefing on bitcoin

What is bitcoin?

Bitcoin is cash for the Internet. Bitcoin acts as an online virtual currency that operates by person-to-person exchange. There's no bank or a central monetary authority such as the Federal Reserve to regulate it or a government to issue it. Bitcoin is owned by its users.

The idea of crypto-currency was first discussed in an online community in 1998. It became available in a usable form in 2009. About $1.5 billion of bitcoin is on the market, according to bitcoin.org.

Bitcoin advantages include low exchange fees, no variance in value by country and accounts that cannot be frozen.

Bitcoins do fluctuate in value. One bitcoin now costs about $142.

How are bitcoins generated?

With paper money, a government decides how much money to generate. Bitcoin is generated by "miners" who use special software to solve math problems and are issued bitcoins in exchange. As more people try to mine the bitcoin, the problems become more difficult. http://www.bitcoinmining.com/

How does bitcoin work?

Bitcoin operates with a mobile app or computer program that creates a personal wallet for each user. The wallet allows the user to send and receive bitcoins. Bitcoin uses cryptography, or code, to control its creation and use.

All transactions are logged into a shared public ledger called the "block chain." Each transaction has a digital signature that corresponds to the sender's address. This prevents people from reusing the same bitcoin.

Unlike a credit card transaction, bitcoin transactions cannot be reversed if you change your mind.

How do you buy and sell bitcoin?

Bitcoins are acquired through a purchase at a bitcoin exchange, through a personal exchange with someone who has bitcoins or as payment for goods or services.

One popular exchange is Coinbase, https://coinbase.com/, which links bitcoin wallets to U.S. bank accounts. Other exchanges, such as https://localbitcoins.com/, serve as a marketplace for people seeking to buy or sell bitcoins.

Many of the exchanges charge a small fee to cash out bitcoins into dollars or euros.

The market is completely unregulated, so it's "buyer beware." Some of the exchanges have created feedback systems to root out unscrupulous users.

"When sending money to an exchange, you are trusting the operator not to steal your funds and that their site is secure," a warning on http://howtobuybitcoins.info/us.html says.

Who can use it?

Bitcoin software is public. Anyone can use it.