What are Cryptocurrencies?, Part 1: Introduction to Bitcoins

Bitcoins and their Basic Concept

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A Bitcoin logo, used by the Bitcoin foundation.

Cryptocurrencies all started when the Bitcoin first came out in 2009. They were based upon an open source idea where users could send transactions to each other. Bitcoins are not physical coins, but rather numbers stored by computers. There is no government or high authority that controls bitcoins, but rather a “network” which consists of users like yourself (or soon-to-be yourself). Users hold bitcoins in “wallets”, which consist of a public and private key. To send funds to another person, a user goes into their wallet and specifies the amount and location to send the Bitcoin (This can be a fraction of a Bitcoin or many Bitcoins). The location is the public key of another persons wallet. The private key is the code used to authorize transactions from a bitcoin wallet. Another way to think of it is this: the public key is someones “username” that is generally publicly known. The private key is someone’s “password” which allows them to send funds from their account. When someone sends someone some bitcoins, the transaction is broadcasted onto a network, and then verified many times over. The act of approving these transactions is called “mining”. Many sites, such as this one, sell Bitcoins for real money. At the time of this writing, Bitcoins sell for around 900 USD, but the price changes everyday.

Other Cryptocurrencies

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The Litecoin logo.

Since the concept of Bitcoins is open-source, there have been many different “spin-offs” of Bitcoins. A list of most of the major ones can be found here. These minor cryptocurrencies generally aren’t worth very much, which the exception of the Litecoin. The price of minor cryptocurrencies tends to be very volatile, leading to many people creating a cryptocurrency, acquiring a bunch at a low cost, and then advertising it obsessively, causing the price to rise (usually very slightly). At this point they cash out, leading to a massive profit.

Conclusion

That is a basic concept of what cryptocurrencies are. Our next part of our guide talks about what “mining” is. Some good further explanations can be found here.

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