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Bitcoin Basics: What is it and why does it matter?

What is Bitcoin and how is it different from cash?

Most people have heard of Bitcoin, but few truly understand the significance of this technology and the role it will play in our lives in the future. One way to view Bitcoins are as a form of money that you can easily send over the internet. Before the invention of Bitcoins, if you wanted to buy something online you needed use a credit card, PayPal, bank transfer or some other 3rd party to send money. However, with Bitcoins you can store your electronic money anywhere you want and send it to anyone with a click of a button. Some questions people ask are:

Why would I want to have Bitcoins instead of cash?

Can Bitcoins be counterfeited?

Where can I buy Bitcoins?

How can I store them?

Will Bitcoins really be worth a million dollars each one day?

Let's answer each of these questions.

1. Why would I want to have Bitcoins instead of cash? Before answering this question, lets discuss "cash". Governments print & or mint money and allow citizens to use their currency to buy goods and services. In the USA, the Coinage Act of 1965 states: "United States coins and currency are legal tender for all debts, public charges, taxes, and dues." What this basically means is that you can buy things with the money they print. However, there is no limit to how much money governments print. When governments print to much money it leads to inflation. The more money the government prints, the less your dollars are worth in purchasing power. The value of a dollar (how much you could buy with it) has dropped over 90% in the past 40 years! So to put it in simple terms, the more money they print the less it is worth. In the past, US currency was backed by gold. Up until 1933 you could redeem US dollars for gold. In other words, dollars were "/ backed by gold. Hence there was a "gold standard". From 1933 to 1971 the dollar was still "backed by gold", but you could not redeem your dollars for gold. Since 1971 the US dollar is only backed by the governments goodwill, but it's value is not tied to anything tangible. So the government can print as much money as they want. However, the more the print, the less it is worth!!!

"Why would I want to have Bitcoins instead of cash?"

Unlike "cash" there is only a limited supply of Bitcoins. They can never be more than 21 million. So just like gold, there is only a finite amount. This is why some people often refer to Bitcoins as digital gold. You may ask why can there only be 21 million. That discussion is for a later article. However, the key point is that the supply is limited and always will be. Since the supply is limited, the price will likely increase with the demand. However, unlike gold, Bitcoins are easy to store electronically and can be moved around the planet with a click of a button. Some "experts" speculate that if Bitcoins become widely used as a store of value that one Bitcoin may be worth as much as 1 million dollars. However, don't worry, you don't need to buy a whole Bitcoin. You can buy a fraction of one. As a matter of fact a Bitcoin can be divided into 100,000,000 separate units (these are called Satoshis). So if 1 Bitcoin is ever worth a million dollars, then 1 Satoshi will be worth a penny. Short answers to the question why Bitcoins instead of cash?

Bitcoins have the potential to increase in value while over time dollars tend to lose their spending power (Bitcoins are a potential store of value)

Bitcoins can be sent anywhere in the world with the click of a button and are easily stored electronically.

Where can I buy Bitcoins?

There are a number of places online where you can purchase Bitcoins and other cryptocurrency. One of the most popular is based in This is a San Francisco based company and is highly respected. It was founded in June of 2012 and the user interface for buying and selling is very intuitive. You can search others, but is a great place to start.

How can I store them?

Will Bitcoins really be worth a million dollars each one day?

These last two topics will be covered in an upcoming article in late July. Stay tuned!

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