Digital currencies are getting more and more popular every year. We’re all used to paying for products and services digitally – over the Internet – via PayPal, for example. But even though everything happens online this doesn’t mean that any kind of digital currency is used. And in this case, it isn’t.

The main difference between currency exchanged digitally and digital currency is that the former is traditional money that’s exchanged over the Internet. The latter is currency that exists only digitally – as a digital entity, which is another name for a piece of programming code.

The most popular online currency these days is Bitcoin.

The Bitcoin network began on January 3, 2009 with the issue of the first Bitcoins. Since then the network grew significantly and is now used by thousands of people around the world.

First of all, this is an open source project, so everyone who wants to see the Bitcoin’s source code can do so.

Secondly, and even more importantly, Bitcoin is a decentralized currency.

Whenever you use a credit card online, or pay via PayPal or any other payment processor you are using centralized currency. No matter what country you’re from there’s always someone who’s backing the currency you’re using. For US Dollars it’s the US Government. For Euros it’s the European Central Bank.

There’s no institution backing Bitcoin, it’s fully decentralized. The currency exists only based on the value exchanged between Bitcoin users.

How to Use Bitcoins

If you want to start gathering and then using Bitcoins you can do one of two things: either download the official open source Bitcoin software, or sign up for an online wallet service.

Both approaches will get you a Bitcoin wallet in which you’ll be able to store your Bitcoins. And they both have their advantages and disadvantages.

Online services take care of making sure that your wallet is saved safely and that no one else has access to it. They also take care of backing up your wallet and giving you access to it wherever you are. But you need to trust those services before you sign up. If, by any chance, the service goes down you lose your wallet, and what follows, your Bitcoins as well.

Bitcoin software gives you full control over your Bitcoins. Everything sits in your computer. The advantages are obvious, but the downsides are that you have to take care of backups and protecting your wallet yourself. If someone hacks into your computer, your hard drive breaks down, or you get a virus then you might lose your Bitcoins forever.

Once you’ve chosen your approach you need to sign up for a Bitcoin receiving address. This address is just like an email address, only for Bitcoins. You can give it to other people and they can send Bitcoin to it. Quite similarly how email addresses work in PayPal.

If you want to transfer Bitcoins to someone else then the procedure is the same. Just input their address and transfer Bitcoins.

What’s important is that Bitcoins are sent directly from person to person, they’re not going through a bank or a clearing house. This is very similar to how cash works in the real world. The transactions are anonymous and no one keeps track of your transaction history.

How to Get Bitcoins

There are two ways. You can either use the Bitcoin miner – a built in section in the Bitcoin software, or you can buy it directly through Bitcoin exchanges around the internet.

The exchanges work like a bidding platform. You place bids on how much Bitcoins your want to buy and for how much money (Euros, Dollars, and other currencies available). When other people decide to take you up on your bid they can send you Bitcoins.

The only problem is that the exchange rates are quite volatile, and there are huge differences between rates depending on when, where, and from whom you buy.

How to Get Paid by Bitcoins

If you’re selling any kind of products on your site you can place a “Pay Using Bitcoin” button in your checkout process. Many online wallets provide such buttons, and they also take care of processing the transactions to make sure that the Bitcoins arrive in your wallet.

That being said, we don’t see affiliates being paid by Bitcoin anytime soon.

However, the merchants you’re affiliated with can successfully provide Bitcoin payments (like Switch Poker, for example). And then pay your commissions using traditional currencies. It all depends on the affiliate program and the rules it has for Bitcoin.

What’s Next for Bitcoin?

The idea of decentralized digital currency is great. You can exchange money directly with other people … no governments or clearing houses standing in your way. You get a traditional wallet and full control over your currency.

However, we still have a couple of years in front of us before such currencies get some main stream popularity.

One more advantage of Bitcoin is that it can’t be shut down. The sole fact that it’s decentralized means that there’s no single institution that can turn the whole network off. Until there are people using Bitcoin it will continue to exist.

Finally, you have to remember that Bitcoin is a new currency (only three years old), so we don’t advise you to make any big investments in Bitcoin. Essentially, treat your Bitcoins as the currency you can afford to lose. We’re not saying that it’s going to happen, but you still need to treat Bitcoin as a high risk investment.

What are your thoughts on Bitcoin? Do you see it as our future currency?

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