What is Bitcoin?

Bitcoin is a cryptographic digital currency. It’s exchanged through Peer to Peer networking (P2P), without a bank or clearing facility. There are no fees, no accounts and no long-term contracts. It’s generated by users – no central department. Bitcoin is a decentralized currency. No central zone, no central control. Slowly more places are starting to accept Bitcoin – as will be explained later. There are, however, hundreds of Bitcoin exchanges where you can trade your Bitcoins for standard currencies. Right now, Bitcoin is at a baseline medium price of $4.58 for 1BTC – not the highest it has ever been.. but not the lowest either. It’s cryptographic because it uses mathematics to determine the current amount of blocks – which will be explained later.


Basically, transactions are the same as real-world transfers: send and receive. Bitcoin is way different though. When a transaction occurs it is placed in the blockchain, and travels through the network to different P2P clients. The blockchain comprises of many “individual blocks” generated by “miners”. You can see a structure of the blockchain to the right. The current blockcount at the time of typing was around 175,000. The green block on the diagram indicates the Genesis block (i.e Block 1) . When you send Bitcoins to a person, you send it to their Address (i.e 1CCWbrxVHAZZjJFtqPZZ3QEAfa4B8z4CA4). This is a hashed string created with cryptography, generated in a Bitcoin Wallet. What’s a Bitcoin Wallet? It will be explained soon.


The main thing is: there are three types of wallet. Client, e-wallet and paper. A client wallet is self-maintained, automatically issued with a Bitcoin address when the client software is downloaded (from Bitcoin.org). It’s free and quite simple to set up. Even simpler, is an e-wallet. You can register online (search Bitcoin e-wallet) for an e-wallet and get issued with an address online. No client needed, no computer needed. The main security risk with the two: your Bitcoins are stored on your computer in a file called wallet.dat – if you are using a client wallet and this is lost, your Bitcoins are lost, permanently. When you use an e-wallet you have to trust the operator. A paper wallet is encrypted with a public key and private key – on paper. Unless someone has your private key no-one can access or touch your Bitcoins. Lose your paper, lose your Bitcoins. Which wallet would you use?


A hash algorithm, which is what Bitcoin uses, turns an large amount of data into a fixed length hash. Bitcoin uses the SHA-256 hash algorithm to generate verifiably “random” numbers in a way that requires a predictable amount of CPU/GPU power – which is what Mining is.. Generating a SHA-256 hash with a value less than the current target solves a block and wins you some coins. This is the mathematical process involved in generating Bitcoins with a miner.

Bitcoin also uses public key cryptography. A Bitcoin contains the owner's public key. When a Bitcoin is transferred from user to user, User A adds the other user's public key to the Bitcoin, and the coin is signed using the original user's private key. The other user now owns the coin and do what they want with it - the original user can not do anything with the amount after it has been sent. It can not be reversed, either.

Mining and new users

New users can get free Bitcoin from various websites, such as the Bitcoin Faucet.

You can run a Bitcoin Miner on your computer – running a harmless program in the background which solves cryptographic hashes and generates Bitcoin in the process. Or, you can trade. You can sell items for Bitcoin. You can create a mind-blowing new service and accept Bitcoins. The choice is yours. Will you create the next big thing – with Bitcoin? A shop? A business?


Trading Bitcoins is as simple as entering the other person’s Address into the “To:” field, entering the amount and sending. The network handles all the cryptography and encryption. QR Codes have made this way easier. NFC could make it even easier. Scan or tap a mobile device on a poster with a tag/QR code and send Bitcoins instantly. Scan a QR code on another phone and send Bitcoins to that address.

If you have an Android/iOS device with a Bitcoin app, try scanning it or sending Bitcoins to it. If you don’t, just scan it to see the address.


Bitcoin can be implemented into lots of existing technologies. As mentioned previously, QR Codes and NFC are two examples. But what about an ATM? A vending machine? A POS terminal?

These are a few ideas developed by individuals wanting to take Bitcoin to the next level, all in the real world. Cleverly, the Bitcoin POS system takes advantage of a Verifone card reader and prints a QR Code on receipt paper instead, allowing for transactions anytime. The terminal is connected to a base station. The ATM allows you to get Bitbills for cash – a type of physical Bitcoin explained soon.

Case Studies: POS and ATM

As explained previously, you can take advantage of a Verifone card reading device and modify the firmware to accept Bitcoin. The new firmware displays a MTGOX exchange rate on the homescreen, with the function buttons leading to options such as:

F1: New Address F2: Alerts F3: Scan Payment F4: Utilities.

The firmware is compatible with the VX570 device, and plugs into an Ethernet port for main use. It can have a USB barcode scanner plugged into the single USB port on the back or a keyboard to type an address manually. The QR code can be printed on a receipt or on screen. A card can also be swiped with an address on the card – like a standard debit card.

As explained previously, there are ways to get physical Bitcoins. The main use in this case study is the BitBills – plastic cards with embedded private keys, and a QR code hologram to verify authenticity. The basic idea involves paying dollar notes into the ATM, scanning your mobile to the camera to transfer the Bitcoins – then a fresh Bitbill is dispensed with the appropriate amount of Bitcoins. This idea was developed by Todd Bethell. You can scan the Public Key code on the BitBill to check balance; but to access the private key you will need to scratch off the QR code – rendering the Bitbill opened, like the Casascius Physical Bitcoins. The only difference is the Casascius coins are physical coins; compared to plastic cards.

Generation Rate

A steady rate is calculated fluctuating the rate of Bitcoins through the apparent market value - the curve showing the estimated number of Bitcoins in circulation, a few years from now. This is calculated so the amount of Bitcoins can be fairly allocated throughout the P2P network and throughout the Bitcoin economy. The blockchain also may have a predictable rate – but it’s hard to calculate because of the incalculable amount of transactions taking place through the Bitcoin economy.

Big Questions

Will Bitcoin change the global electronic economy? Will businesses take advantage of Bitcoin POS? Are Bitcoin ATMs set for worldwide deployment? What are your thoughts on physical Bitcoins? Do you know anywhere where Bitcoins could be used? What are your thoughts on security? What are your thoughts about cryptography and mining in Bitcoin?

Will Bitcoin change the world?

Related articles:

What Frederick Hayek would have said about Cryptocurrencies

Bitcoin and the Big Mac Index

Alphabetical list of articles about Bitcoin

QR Code
QR Code bitcoin (generated for current page)