What are Bitcoins?
Bitcoins are an electronic currency which do not exist in physical form; there are no actual coins or banknotes. Instead you keep your Bitcoins on your computer or your phone (with an electronic wallet) or, alternatively, in an online account with a Bitcoin exchange (rather like a Bitcoin bank account).
Another term for electronic currency is ’Cryptocurrency’, where the ’crypto’ part comes from the word ’encryption’ which lies at the very heart of this form of money. Encryption techniques are used to regulate the generation or creation of new currency and to verify the transfer of funds when you buy or sell anything using this method of payment.
Bitcoins are the best known cryptocurrency and were first on the scene in 2009. Since then no less than 850 cryptocurrencies have been launched. However, just like with a physical currency, only a few prevail. If you want an analogy, Bitcoins are like the US Dollar of electronic currencies - they are the most used, most trusted and most accepted of all cryptocurrencies. They also have the largest market capitalisation and highest traded volume (more people exchanging them).
The second largest cryptocurrency is Ethereum, which could be compared to the Euro. However, the capitalisation and liquidity of Ethereum is only roughly half that of Bitcoin. Third and fourth in line are Ripple and Litecoin. You could put either in third or fourth position depending on whether you rank by capitalisation or traded volume. Maybe you could liken these to Yen and Renminbi.
Back to Bitcoins; they were invented by an anonymous person or persons known as Satoshi Nakamoto who released the open-source code in 2009 as a way for people to transact with others without the need for a central repository or any other intermediaries.
In other words, there’s no bank or government controlling Bitcoins, and transactions are from one person to another (peer-to-peer) making it is possible to buy and sell things without giving away any personal information and to stay anonymous. But just as the PIN you use at an ATM is not known by anyone else, there are other steps you must take to stay truly anonymous when using Bitcoins.
Still Confused?
Don’t be! You are perfectly used to buying and selling things without using cash. Perhaps you use contactless payments or pay by bank transfer for larger items? Even if you use cheques, you don't actually touch the money. So, think of Bitcoins just like that – money in your bank that you only ever spend using your computer or phone.
