A beginner’s guide to Bitcoin
Want to become a millionaire in seven years? This could be your chance.
Had you invested $100 in Bitcoin way back in 2010, you’d be sitting on $75 million today. That’s a fact. On Monday, Bitcoin was trading as high as $2,200 – hitting a fresh record high. Well, you missed that boat, but in case you’re looking to get into Bitcoin now, here’s everything you need to know.
“What is Bitcoin?”
Bitcoin is a peer-to-peer cash system or cryptocurrency. It’s essentially internet money that doesn’t rely on a central monetary authority and allows for – encourages, actually – anonymous, untrackable and untaxable transactions.
It does, but Bitcoin gained momentum a little after Occupy Wall Street accused big banks of misusing borrowers’ money, duping clients, rigging the system, and charging mind-numbing fees. Bitcoin pioneers wanted to put the seller in charge, eliminate the middleman, cancel interest fees, and make transactions transparent, to hack corruption and cut fees. They created a decentralized system, where you could control your funds and know what was going on.
“So it’s not shady?”
It kind of is. Bitcoin is actually the de facto currency of the Dark Web – the underbelly of the World Wide Web notorious for hosting highly illegal content including pirated music and films, drugs, child pornography and sites where credit card details are bought and sold.
“Who would create such a thing?”
Good question. The true answer is: we don’t know. The mysterious computer scientist credited with the creation of Bitcoin is only known by his online name: Satoshi Nakamoto. Legend has it that Nakamoto mined one million bitcoins and then decided he wanted nothing to do with the company. And so, he passed on the reins to Gavin Andersen – a Massachusetts-based computer scientist is the chief scientist at the Bitcoin Foundation.
“What do you mean he mined Bitcoins?”
Mining is one of the ways a person can get his virtual hands on bitcoins. Mining involves running the Bitcoin software on your computer that processes complex mathematical equations. If your computer solves one of these equations, you get paid in bitcoins. The issue, however, is that your computer is up against large groups of computers that will likely solve the problem before you. That means your machine may end up doing a bunch of work and it will be a very long time before you ever get paid. The solution, in this case, is joining a mining group. This makes it much more likely you’ll get paid, but you’ll also receive only your small share. Nevertheless, without a farm of supercomputers, you’ll earn more in the long run by mining with a group. There is a cap on the number of bitcoins that will be produced, which is 21 million, and a pre-defined schedule of how quickly they are released up until 2040. There are currently around 11 million in circulation.
“That sounds tiresome. Can’t I just buy some?”
If you have the money, sure you can. Just use the Coinbase app and follow the instructions.
“That’s easier. But what can I buy with bitcoins?”
Billion dollar businesses like Dell, Expedia, PayPal and Microsoft have all added Bitcoin as a payment option for a variety of content across its online platforms. In fact, Bitcoin Magazine offers a long list of options that includes everything from music downloads to gift cards to clothing.
“But, does Bitcoin become real money?”
It can… but only through sale. The most popular way is selling through the online exchanges like Mt. Gox, the biggest exchange that handles around 80 per cent of Bitcoin trade. You’d need to go through an identity verification process, but after that it’s all very simple. And the best part is, you don’t have to do the rest of the work like organizing sales. After the identity verification, you have to place a ‘sell’ order specifying the number of bitcoins you want to sell and also the price per unit as per your needs. As soon as someone places a ‘buy’ order that matches the amount of your ‘sell’ order, the exchange takes place and the amount is credited to your account in the desired currency.
The other option is direct online trade wherein you create a trade advertisement including the number of bitcoins you’re willing to sell. And then you just need to post it on a trading website.
“How safe is Bitcoin?”
In the interest of full disclosure, not very. There have been a few cases of hackers – like this and this. Needless to say, there are some extremely smart hackers in Bitcoin. So far, none of the stolen bitcoins have been spent, because those coins can be tracked, but you can still be deprived of your ability to spend them.
“Should I get into Bitcoin now?”
Don’t bother mining now. We’re way past that stage. You could go ahead and buy bitcoins just don’t think about emptying that savings account. You could make a decent sum by monitoring the price index. You see, Bitcoin works on demand, experts can make an informed guess about where it is headed.
Of course, you could always go for Ethereum.