When Bitcoin was created in 2009, it was a digital curiosity known only to computer and finance geeks. Today, the world’s central banks are taking it seriously. Despite knowing about its existence, many are still in the dark about this piece of tech that has already made people millions.
What is Bitcoin?
Bitcoin is a new type of currency. Like any other currency, people can exchange it for products or services. Bitcoin, however, is purely digital. There are no bills or coins, just electronic ones and zeros. Transactions are stored in public ledgers called blockchains, which are saved in a legion of decentralized computers; there is no central storage facility or a regulating authority, like a central bank. People who own Bitcoin have access to a private digital key that lets them claim a part of the blockchain. The key is protected by strong cryptography that will take the earth’s best computers to hack. This is the reason why Bitcoin is called a cryptocurrency.
If it’s just electronic money, what’s so special about it?
Bitcoin provides many benefits due to its nature. First, it’s decentralized. Many people regard the lack of a central bank and its regulations as a great advantage. The currency is controlled only by the free market and not any person’s, class’s, or organization’s economic interest. It can’t be purposefully devalued to fuel economic growth and debt. But the lack of regulation also creates a lack of consumer protection. If a person was scammed, there are no refunds.
Secondly, all cryptocurrency transactions are anonymous. It’s still possible to track them through cryptocurrency markets or exchanges but if the traders avoid these then they can’t be monitored. This makes Bitcoin a favorite of illicit trading, such as illegal drugs.
Thirdly, Bitcoin is global. A Filipino, a Nigerian, and an American can trade with each other using Bitcoin instantly without having to fiddle with their respective currency. However Bitcoin isn’t legal tender, a trader isn’t forced to accept payment in cryptocurrency unlike national currencies. People can’t use Bitcoin to pay for everything but many retailers accept it, such as Microsoft, Zynga, MetroDeal, and CashCashPinoy.
Lastly, it has intrinsic value, unlike fiat currencies , which are most modern money. The Philippine peso, the American dollar, and others technically have unlimited supply, regulated only by the central banks. Unfortunately, when something has infinite supply, its intrinsic value is worthless. Because Bitcoin was designed to be limited, like other scarce objects such as gold, it will always have some value. And like gold, additional Bitcoin is produced through electronic mining. Approximately 16.7 million bitcoins have been produced out of a maximum of 21 million.
How do people get rich?
Buy Low, Sell High
Making money in Bitcoin is similar to investing in stocks and futures. Bitcoin is volatile; it goes up and down constantly. But generally, its price is rising – for now. When it was first traded in 2010, the highest price was only $0.39; today it’s about $9,000. Fortunately, Bitcoin is divisible and can be bought in increments of .00000001. This unit is called a satoshi, after the creator’s alias, Satoshi Nakamoto. A person can simply buy Bitcoin when it’s cheap then sell when it rises. In the Philippines, it can be traded through Coins.ph, Buybitcoin.ph, GoAbra, or Bitbit.cash.
It’s also possible to make money by mining Bitcoins. However, this process is painfully slow, even when using specifically tailored computer rigs that could heat a whole house. Many small miners pool their resources in mining pools or cloud mining.
Are there other cryptocurrencies?
Bitcoin isn’t the only cryptocurrency. There are alternatives, such as Litecoin and Ethereum, that share the same principles and design. They have different behaviors that may make them more attractive for the investor. New cryptocurrencies are being created regularly; which will have staying power is up to the market.
Can Bitcoin be stolen?
When investing in cryptocurrencies, always beware of scams and hacks. While it’s not possible to hack a cryptocurrency, a person can still be conned and his account on an exchange, hacked. Once the hacker transfers Bitcoins from the victim’s account to his, it’s gone forever. Fortunately, there are measures and practices for security like the use of a physical digital wallet.
Bitcoin and other cryptocurrencies are an exciting field of investment. This technology can be the way forward and someday all trade might occur through them. However, that’s in the future and excitement is not a good characteristic for a regular person’s savings. But if a person can handle the high stakes, the pay-offs will also be great.