The Beginner’s Guide to Bitcoin is now free!
The last few weeks has once again seen a dramatic rise in the interest in Bitcoin. In the interest of helping out all the newcomers to the community, I’ve made the basic Beginner’s Guide to Bitcoin free (but donations are gladly accepted). You can grab it from the web site.
Be sure to spread the word!
There’s No Such Thing as a Bitcoin
Bitcoin introduces newcomers to a lot of new concepts, but one concept in particular seems to be the hardest to grasp - you do not have any bitcoins in your “wallet”. When you buy bitcoins, nothing is sent to you, no special file or code.
That’s because - and here’s the concept to wrap your head around - there’s no such thing as a bitcoin. At least, not as some kind of individual object you can inspect in any way. Bitcoins only exist as transactions, which means that they only exist in the block chain, the record of transactions that every Bitcoin client has.
Let’s say Alice wants to buy a product from Carl that costs 100 bitcoins. Alice got bitcoins from earlier transactions. She generates a new transaction that references those earlier transactions (called the transaction inputs), which total 100 bitcoins, and sends them to Carl’s Bitcoin address (this is called the transaction output). Carl has been mining bitcoins and successfully generated an additional 50 bitcoins, so he has a total of 150 bitcoins to spend.
Now Carl purchases a product from Dave and sends him 101 bitcoins, referencing the output of the transaction from Alice, and the bitcoins he generated. Because those two transactions total 150 bitcoins, he has to send the remaining 49 bitcoins back to himself as “change”, which he can spend later. Carl’s Bitcoin client automatically sends the change to a new Bitcoin address Carl controls.
Now Dave wants to send those 101 bitcoins to Ed, so he generates a new transaction that references the output of the transaction from Carl, and the new transaction is recorded on the network.
Dave is now unable to send the bitcoins again, because the output of the transaction from Carl has already been used up and recorded on the block chain. Until Ed uses the bitcoins in a future transaction, the transaction that Dave made just sits unclaimed on the Bitcoin network
The Bitcoin Foundation Visualized
The Bitcoin Foundation was announced last September, with the goal of helping “people exchange resources and ideas more freely with the objective to promote, protect, and standardize the use of bitcoin”. Founding members included Mark Karpeles, owner of Mt. Gox; Peter Vessenes, CEO of CoinLabs; Charlie Shrem, CEO of BitInstant; Gavin Andresen, Bitcoin lead developer; Jon Matonis, who is on the Editorial Board of Bitcoin Magazine; and Patrick Murck, of Engage Legal.
Some members of the Bitcoin community were not thrilled at the idea of the Foundation, feeling that it represented too much control of Bitcoin in one place. Bitcoin is mean to be uncontrollable by any one organization, but it’s certainly possible to see how the founding members control a large piece of the Bitcoin ecosystem.
Below is a network diagram of the Bitcoin Foundation, including it’s founding members, Platinum & Silver business members, and a few other key players. You can click on the image for a larger view.
The Board of the Bitcoin Foundation has 5 seats, currently taken by the Foundation’s founders. It is broken down into two seats for the Individual member class, two seats for Corporation class, and one seat for the Founders.
The Corporation class is broken down into Platinum, Gold, and Silver levels. The Platinum group gets one of the Corporate seats, and the Gold and Silver level members get the other one. Platinum members pay 10,000 BTC per year (or about $720,000 based on the current exchange rate). Gold level members pay 2,500 per year ( about $180,000). The dues for Silver level members vary depending on the number of employees in the company, but you can see the breakdown here.
Individual members pay 2.5 BTC per year, or 25 BTC for a lifetime membership. Founders dues are 10 BTC per year.
The Bitcoin Foundation will be holding it’s first conference this May, in San Jose, California.
