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Bitcoins 101: What You Need to Know About the Virtual Currency

 by Ruth Schneider   Posted on November 8 2013

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Whether you know it or not, you could be heading to an ATM in a few years to pull out bitcoins rather than those plain, old, American greenbacks.

What the heck are bitcoins, anyway?

Well, it's an online currency. It's mostly known for its uses in black market trades in the dark recess of the Internet -- it was the method of payment accepted on the Silk Road website, which sold narcotics online, until the feds shut it down.

How much are bitcoins worth?

That's a tricky question. Their value changes constantly. On Nov. 4, they were valued around $265 per bitcoin, according to Mt.Gox, a popular bitcoin exchange. In early October, the value of a single bitcoin waivered around $140-$150.

How do you get bitcoins?

There are a couple different ways to get bitcoins.

  • You can be a bitcoin miner, which is sort of like a currency creator. Bitcoins are given in exchange for using someone's computer to help power and maintain the entire network. There are bitcoin miners across the world helping to keep the system running.
  • You can purchase bitcoins at an exchange or trade them with someone near you.
  • Or you can walk up to a bitcoin ATM. The first one was installed in a coffee shop in Vancouver, British Columbia, this week. Users have their hands scanned and are given a receipt for their bitcoin purchases.

Who accepts bitcoins?

There are a handful of businesses that accept bitcoins as payments. You can order collectibles, pay for trips, buy a hot dog or a grilled cheese sandwich, or even finance chiropractic services, all with this virtual currency. Even OKCupid, the dating site, started accepting bitcoins earlier this year for its premium service, A-List.

Why use bitcoins?

Bitcoins use an encrypted technology that protects the identity of users -- essentially it's almost as anonymous as cash.

It's also an international currency -- the going rate in China is the same as the going rate in the US. There's no need for conversions.

What does the future hold for bitcoins?

It looks pretty bright, overall. The currency is gaining value and traction at an amazing rate.

"I'm confident you will see major worldwide retailers adopting systems built on bitcoin," Jim Breyer, a Silicon Valley venture capitalist and early Facebook investor, told The New York Times.

But like the stock market, the value is not stable, it's volatile. It might be worth $262 today, tomorrow is a whole different story.

While this currency is primarily used by hipsters who need to try the new big thing or by cyber criminals who like the encrypted nature of the transactions, it will be interesting to watch if this catches on as a new global currency.

In the meantime, I'll probably stick with my greenbacks.

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