Bitcoin, the best-known of the upstart digital currencies, is still a mystery to many people in America, Europa or Asia.
If you’ve heard about Bitcoin, it’s mainly from startling headlines about its 600% price gain earlier this year or its surge to nearly $7’000 last month or even more this month, making it the the most valuable player in the mushrooming space for so-called cryptocurrencies. Or because Wall Street or bankers skeptics call it a “fad,” a “fraud” and a “speculative bubble.”
What’s Bitcoin exactly, and should you invest in it?
Believers in Bitcoin say it’s the money of the future, a digital alternative to the dollar or euro or yen. Non-believers say it’s not real money. After all, you can’t dig into your pocket and pull one out like a $10 or Euro bill and hand it to a cashier at Starbucks to pay for your morning coffee.
Some investment pros say it’s a new asset class, no different from a stock, a bond or an ounce of gold and that it has great investment promise. Skeptics say it’s not an investment because there’s no good way to value it.
So what exactly is Bitcoin?
Bitcoin is a digital currency and digital payment system that allows people to send and receive Bitcoins — or digital tokens — to anyone, anywhere in the world. It runs on a decentralized network of computers in which all transactions are recorded, verified and updated by technology known as blockchain, which is akin to an online public ledger. Unlike traditional payment networks such as Mastercard, Bitcoin isn’t owned by anyone. There’s no central authority, such as a bank or government, that’s in charge of it.
How do you buy Bitcoin?
An easy way to get started is to set up an account with a Bitcoin exchange, such as Coinbase ((U.S.-based) or bitpanda.com (Austria-based) which allows you to purchase Bitcoins with money from your bank account or credit card. And just like a Stock Exchange (the New York Stock Exchange or like Börse Frankfurt) is a place you can go to buy and sell stocks such as Apple, Amazon or Siemens, these exchanges will let you trade cryptocurrencies.
How do I access my bitcoin “money”?
Bitcoins purchased on an exchange or received in a transaction can be stored and accessed in a so-called „Bitcoin Wallet,“ which is like a bank account. A Bitcoin Wallet lets you receive Bitcoins, store or save them and send them to others. There are apps that allow you to install a Bitcoin Wallet on your computer or mobile device.
Where can I spend it, and what can I buy with it?
You can spend your Bitcoin at any retailer set up to accept Bitcoin as money to pay for purchases. But Bitcoin hasn’t yet enjoyed widespread adoption, and those retailers that do accept it are mostly set up online.
You can use Bitcoin to buy more than 1,000 products for example at discount retailer Overstock.com or you can also go online and use Bitcoin at Microsoft to buy apps, games and videos on Xbox. Use Bitcoins to book airline tickets from CheapAir.com or hotel rooms from Expedia and and and.
How are Bitcoins priced?
The price is determined by supply and demand — and market forces. The Bitcoin supply will be limited to 21 million, and currently there are roughly 16.6 million.
Whether Bitcoin rises or falls in value depends on whether investors believe it will gain widespread acceptance, whether it can avoid being shut down by governments and whether it can continue to dominate the digital currency market or be surpassed by one of more than 1’100 other cryptocurrencies.
What do investors need to know about Bitcoin?
Bitcoin has gained most of its notoriety as an investment. A single Bitcoin ended 2016 at around $950 but skyrocketed to nearly $7’500 on Nov. 5. That’s a gain of around 650%. But one of Bitcoin’s downsides is that it has proved to be wildly volatile. One week after hitting its 2017 peak, it had given back more than 25% before rallying back 20% to around $7’000 Friday.
So what are its characteristics?
Bitcoin has several important features that set it apart from government-backed currencies.
1. It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.
2. It’s easy to set up
Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3. It’s anonymous
Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…
4. It’s completely transparent
If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.
There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.
5. Transaction fees are miniscule
Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.
6. It’s fast
You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
7. It’s non-repudiable
So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.
What experts says about Bitcoin…
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