What is Bitcoin?
Bitcoin is an open source digital currency, backed by no government or central entity.
How is it a currency?
Because people agree that it is. Calling people stupid for it still doesn't change the fact that to them it is one. It isn't very far off from hats on TF2.
How does it function?
Each person running the official software is a node. Each node receives information about transactions and blocks, and then relays it to other nodes. Anyone can run a node. Think P2P, like BitTorrent protocol. The official GUI client doubles for a node, but downloading the entire blockchain (history of blocks) takes a long time and can be CPU/Storage heavy. Instead, you can use an alternative client or an online wallet. In the future, when bitcoin is more popular, it will be common for large corporations to have their own node while everyday users will use lighter clients.
While you can choose what fee you include in a transaction, typically people use 0.0005-0.001BTC. The use of transaction fees is explained further below. You can in theory not include a fee at all, but I do not recommend it.
How is a bitcoin "created"?
Miners start by putting hardware to work on solving an algorithm. When it is solved, the node they are mining on relays the solved "block" to other nodes, and it branches off. Eventually, after enough other blocks were solved, the block becomes "confirmed" and rewards the miner with 25 (previously 50, before reward halving) Bitcoins.
Why does this happen? What is the point of a block?
The real point of a block is to write transactions to the network. Blocks typically include many hundred to thousands of transactions, and in theory one should be solved somewhere in the world every 10 minutes. By writing a transaction to the network, the transaction itself is also "confirmed", and can not be unwritten. This doesn't mean that unconfirmed transactions can be returned either, but this means that the transaction was considered by the node real, and non-malicious.
Mining:
Rewards/Transaction Fees
The reward from a block goes to the miner for spending the time and electricity to support the network by mining. Eventually, rewards will be so small that mining a transaction-less block will be worth almost nothing. This is where fees come in. Including a fee in a transaction gives your transaction a higher priority. Since transactions can vary in size, a huge transaction that is sending bitcoins to hundreds of addresses will want to use a much larger fee then a tiny transaction. Would you rather sign 100 pages for a penny or 1 page for a penny? Far in the future when block rewards are so small they mean nothing, fees will be used to credit miners. The block rewards are simply to A. Reward the miner for his work early in Bitcoins cycle, and B. to distribute the coins fairly.
Difficulty
Difficulty is what keeps bitcoin creation consistent. Difficulty is the, well difficulty of how hard it is to solve a block. If more people start mining, more blocks are created faster then intended, so the difficulty increases. So, you can expect 50400 new Bitcoins to be in existence in roughly 14 days because of the difficulty changing every cycle (2016 blocks).
Pools
Pools are simply multiple miners putting their hashing power together to solve blocks faster. Once a block is solved it is distributed fairly among all the miners. (Example: If there was 3 miners, one with 50Gh/s, and two with 100Gh/s, the two 100Gh/s miners would get 10BTC from each block solved. The 50GH/s miner would get 5BTC each block because he is 1/5th)
Mining at a pool won't make you any richer then mining solo, but it greatly decreases variance. While you could solve 2 blocks in a day by yourself and be 50BTC richer, you could also go 6 months without solving a single one. Pooled mining solves that problem.
Enough text! I want a video explanation!
As you wish.
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Useful tools and links:
Buying/Selling BTC
FYB-SG: ACRA registered bitcoin exchange for SG.
MTGox: the most popular exchange site.
How to buy BTC from FYB-SG:
Step 1: Register for an account at
https://www.fybsg.com
Step 2: Verify your email
Step 3: Transfer SGD to our bank account from the details on Deposit Page (make sure to indicate your unique FYB Code to identify your FYB account)
Step 4: An email notification will be sent to your email when funds are received
Step 5: Login and place buy order
Selling BTC
Fast Cash 4 Bitcoin: supports Paypal, ACH, Bank Wire, and Dwolla
Trading or Buying
Bitcoin Wiki: Thousands of merchants can be found here. Anything from web hosting, to electronics, to professional services like Psychotherapy.
Bitcoin Clients
Offline
For those who would like to run the entire node, prepare to wait 12-24 hours.
Here's the official client.
For someone who wants a lightweight alternative to the official client, I'd recommend
Multibit Client.
Online
The only online client I'd recommend is
Blockchain.info. They cannot see your transactions nor make payments, they have zero access to your account. Loose it, and you loose your bitcoins.
There are others, but remember you are letting other people hold your money. Unlike a bank, people can run off with your money.
Bitcoin Miners
Please read the notes below first
For those who want a GUI and are willing to sacrifice some speed for it, try
GUI Miner.
For those who are fine with a command line and want to have the ability to push their hardware and test different settings, try
CGMiner.
To set up miners, check those threads and check the FAQ/Howto/Etc sections of the pools of their choice. I'd recommend
ozco.in pool.
Notes
- Now that ASICs were released (devices made to specifically mine bitcoins) GPU mining is no longer worth it. Unless you have free electricity (or live in your mothers basement) you will just loose money by mining with a GPU. If you are still keen on doing so, check out the
hardware page.
- You can use
allchains or
bitcoinx to find out how much you'd make.
