WTF is Bitcoin ?

Isle of Man Bitcoin

There has been quite a bit of publicity about Bitcoin both generally and more recently specifically in the Isle of Man. In particular it has been confirmed that the Island would be a good location to base Bitcoin exchanges and further that the Government and the local regulator are working hard to establish a sensible regulatory regime for this type of activity.

See here for a technical explanation of why bitcoin exchanges are not currently regulated in the Isle of Man. (although hopefully they will be soon)

But what actually is ‘bitcoin’?

It’s been described as ‘currency’ for the Internet but in reality it’s simply a peer to peer payment system based on a new currency which is outside the control of any specific national Government. Like all currencies, Bitcoins have a limited supply (money supply) but unlike other currencies, the supply isn’t governed by a central bank, rather it is controlled by computer power – via the ability of computers to solve a computer algorithm (a puzzle) and new Bitcoins are minted (or ‘mined’) by solving the algorithm.

Like other currencies, Bitcoins can be used to buy things, both on the Internet – now 30,000+ merchants accept them – and also in the real world. A house in Bali was recently purchased using Bitcoins (USD value about $500K).

There are also exchanges were you can change your Bitcoins for tradition money (Euro, Yen, Dollar) or your traditonal money for Bitcoins.

So there are 3 ways to obtain your Bitcoins – you can ‘mine’ them; this is essentially a reward for maintaining the financial ledger (block chain) which records all Bitcoin transactions (it prevents double spending), you can earn them (ie sell something) or your can buy them on a money exchange.

Of course, the technical underpinnings are necessarily a little more complex than that, as it is necessary for the system to allow certainty over Bitcoin ownership so, for example, people can’t spend them twice but the infographic below provides some background. The Wikipedia explanation is also quite good and there are some handy resources on YouTube.

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Bitcoin infographic

by bpalacio@mac.com.
Explore more visuals like this one on the web's largest information design community - Visually.



photo credit: btckeychain via photopin cc

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