What the Hell is Bitcoin (and How Does It Work)?

Source: Thinkstock

Source: Thinkstock

Bitcoin is a digital currency, created to take out the middleman (read: the banks) and put control of the currency and its value in the hands of its users. But why does it exist, and how and where can you use Bitcoin? Hopefully we can provide some answers for you here.

Bitcoin has been around since 2009, but has only seen real traction in the past few years as adoption among mainstream retailers and media coverage increased. Users have set up elaborate “mining” operations, and in some cases lost virtual fortunes as the value of Bitcoins rose and fell with its increasing popularity and boom-and-crash cycles — just like paper currencies.


How does it work?

As we said previously, Bitcoin is completely digital and uses encryption to control its distribution and creation. According to CNN, there are three ways you can obtain Bitcoins. The easiest way is to purchase them on an exchange, much like you would go to a bank to exchange currency when you’re planning a trip to a foreign country.

Examples of popular exchanges include Bitstamp, Bitfinex, and Coinbase. All you need to do is purchase the Bitcoins using traditional currency, and you’re ready to go. You can also transfer Bitcoins between users.

The coins are stored in a “wallet” that resides within a mobile app or computer application, and this handles the sending and receiving of all Bitcoin transactions. While the network itself is decentralized, all transactions are placed on a public ledger to make verification of payments possible and to prevent fraud.


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Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. The information does not constitute investment advice or an offer to invest.