The virtual currency known as Bitcoin took a step away from the margins of the financial system Monday, as the U.S. Senate homeland security and governmental affairs committee set aside a good chunk of the afternoon for testimony on whether the private – and largely anonymous – payment system requires special regulatory scrutiny. It was the first time a congressional committee had conducted hearings on digital currencies. Read the full story.
So what is Bitcoin, how is it "farmed" and how do you buy it? Read the full explanation below.
What is Bitcoin?
Bitcoin is a completely decentralized form of virtual currency that enables direct payment over the internet by skipping the middleman, which is usually a bank or credit card company. Transactions are safe due to cryptography used to prevent double spending, counterfeiting, or theft. Users can use bitcoins for a variety of real transactions.
How does Bitcoin work?
Before a Bitcoin can be purchased, a user must install a virtual 'wallet' onto a personal computer or mobile device. The wallet is similar to personal finance software and keeps track of Bitcoin balance and transactions.
The user then pays for bitcoins, either through a credit card, bank account or anonymously with cash. Bitcoins are transferred directly into a Bitcoin account, and the user can send and receive payments directly to a buyer or seller.
Similar to trading stocks, a buyer can place an order for a Bitcoin through an exchange program once the funds are available. Bitcoins can also be purchased from third parties.
Users pay far fewer associated fees by skipping the middle man in each transaction, and they can also maintain a much higher level of anonymity.