Your Overview Of Bitcoin

Let me guess, you’re a bit confused whenever you hear someone talk about Bitcoin. Not to worry, you and most of the rest of the general population are in the same boat, myself included. That’s why today we have an expert on the case to delivery a wonderfully informative guest post that covers all the Bitcoin basics. At the end of this article, you’ll know more than enough to have an intelligent conversation around your office water cooler!  

This article may contain affiliate links.

Bitcoin has been in the news on and off for a few years now, but the summer of 2017 probably saw it mentioned more than any previous season. Though the most recent headlines suggest that the summer of Bitcoin ended badly, it’s worth mentioning that there was, in fact, a “summer of Bitcoin.” The so-called cryptocurrency was all over the place for the past few months, thanks to surging prices, increasing interest, and a little bit of buzz coming from specific pieces of news.

But if you feel a little bit as if all the Bitcoin news is coming too quickly to keep up, you certainly can’t be blamed. This is a new currency that wasn’t even taken seriously by much of the population (and by extension much of the internet) for its first few years. Many of us now feel as if we’re being forced to play catch-up as Bitcoin becomes more important, or at least more relevant. There’s definitely a little bit of a learning curve, but for a bit of a crash course, read on for our broad overview.

What Is It, Exactly?

Bitcoin

Bitcoin!

Perhaps the best simple definition for Bitcoin is that it’s a type of digital currency that’s created and held electronically. It is not a digital reputation of a regular currency, the way your online bank account represents your money. And it isn’t simply a digital payment system like PayPal or Venmo. Rather, Bitcoin is an “alternative” currency that exists entirely in electronic form.

In a sense, this almost makes Bitcoin artificial (which is not to be confused with the idea that it doesn’t have value). It was invented such that there is a finite supply in the world, with new Bitcoin needing to be “mined” by people who go through a complex mathematical process to do so. In that sense, Bitcoin is initially “earned” by miners before it hits the market as a tradable and collectible financial asset.

How Do You Store It?

There are actually multiple ways to buy and store Bitcoin. The primary means of acquisition is to simply buy Bitcoin in exchange for ordinary currency on a Bitcoin exchange online. However, there is also a growing number of Bitcoin ATMs, or BTMs, appearing in certain countries that have been more welcoming to cryptocurrency. This means there’s an in-person option as well. Mining, of course, is the third option, but it’s a difficult process that most interested people essentially ignore.

As for storage, there are different kinds of wallet options, and understanding them is essential to catching on to the whole idea of cryptocurrency. A bitcoin wallet – which can operate on a desktop, mobile app, or via a handheld device – stores “private keys” that give you access to Bitcoin online. Basically, you can’t access your Bitcoin to make any transactions without private keys, and you acquire them by purchasing Bitcoin. In a sense, you can think of the keys as PIN numbers for a Bitcoin bank account, purely for purposes of understanding.

Should You Use Or Invest?

This isn’t a question that anyone else can answer for you. However, there is a lively and ongoing debate over whether Bitcoin is more useful as an alternative to currency or as an investment commodity. Those who prefer Bitcoin as an alternative currency will point out that more merchants are accepting cryptocurrency, particularly on the internet. On the other hand, people favoring use as an investment asset will discuss rapidly rising value in the last year or so, as well as the idea that Bitcoin’s lack of connection to a single market or financial system makes it somewhat like gold or oil in that it can be a strategic alternative to volatile markets.

What Is The Current Market?

Mad Money Cat - bitcoin

Finally! Someone explained it. #thankyou

Ironically, given the aforementioned view that some hold of Bitcoin as an alternative to volatile markets, the cryptocurrency itself has been extraordinarily volatile in 2017. While it broke $1,000 in January and $5,000 in September – high points that some thought it might never reach – its up-and-down nature has been perplexing to investors and analysts alike. Some think this is only the beginning of a prolonged surge that could see Bitcoin rise significantly higher in the coming years. Some think we’ve seen something close to the peak and the currency will be plummeting back down to Earth, so to speak.

The best you can do to read the market, aside from simply analyzing charts and listening to the opinions of experts, is to stay on top of news about its use and acceptance worldwide. For instance, some of the biggest news of the summer was that China cracked down on Bitcoin usage, suffocating a major section of the market but leading to Japan becoming the powerhouse of the market. You’ll tend to see headlines about major events like these that can affect supply and demand.

What are your thoughts on this new cryptocurrency? Would you consider investing in it or using it in the future?

Comments on this entry are closed.

  • Steve Poling Oct 7, 2017, 11:00 pm

    It is not that cryptocurrencies have been “de-regulated” it is that regulations have not yet been written. J.D. Rockefeller said that he never broke any laws, but because of what he had done a lot of laws were enacted. Moreover, gubmints lack a lot of leverage where it comes to regulating them. It’s decentralized, so that there’s single entity for the Feds to attack. And there are places like Singapore where investors can bypass the feds.

  • Steve Poling Oct 6, 2017, 2:53 pm

    By the way, this month’s IEEE Spectrum magazine has a big spread on blockchains.

    • Mad Money Monster Oct 6, 2017, 3:11 pm

      Nice, thanks for the tip!

  • Steve Poling Oct 6, 2017, 2:51 pm

    My first impression of Bitcoin was that it has zip, zero, nada intrinsic value. Gold can be used in jewelry. Tulip bulbs can be planted in your garden. Thus I dismissed it as Ponzi scheme.

    My home town is Grand Rapids, MI–the home base of Amway. Some have claimed Amway is a mere Ponzi scheme. It has successfully defended itself in court because they sells soap. Granted, there *are* Ponzi-like aspects to the company, but standing behind those aspects are real goods and services distributed through Amway’s network.

    My zero intrinsic value assessment of Bitcoin, Ethereum, etc. ignored the “network effects” of these media of exchanging value. Like a walkie-talkie (or an 1880s telephone) its value increases with the number of users. Zero users = zero value. Many users…, exponentially growing value.

    Built atop the cryptocurrencies are ICOs (initial coin offering). Whereas an IPO (initial public offering) sells off portions of a startup’s equity, an ICO grants the purchaser future goods and services. These are “smart contracts” that look like something we are familiar with: bonds. At the moment, I regard ICOs as risky which makes them analogous to junk bonds.

    On the PRO side, are ICOs an asset class whose price is uncorrelated with equities. Thus suitable for balancing an equities-heavy portfolio (without the pitiful returns of bonds). On the CON side, they have a great deal of risk, specifically technical risk and regulatory risk. I think regulatory risk makes cryptocurrencies and ICOs unsuitable for tax-favored accounts. (Balancing an equities-heavy retirement portfolio with junk bonds is abso-freaking-crazy!!!)

    Nevertheless, I am bullish on Ethereum and ICOs. I just haven’t decided on how I want to grasp this opportunity.

    • Mad Money Monster Oct 6, 2017, 3:10 pm

      I agree. I believe there is something to it and something that isn’t going away in the near future; hence, it’s hard to keep ignoring. But, just how much time (and money, if any) I will invest is yet to be seen.

  • Matt Oct 6, 2017, 1:44 pm

    I’ve been getting more and more interested in Cryptocurrency over the last few months, and I think it’s something that we need to start paying attention to. The blockchain tech that powers Bitcoin has more and more real-world applications every day.

    The crypto market is still young and changing and has it’s fair share of scams and manipulation – which comes with the territory of de-regulation. There’s also a lot of exuberance and similarities to the Tech Bubble of the late 90’s.

    It’s something that I recommend learning more about, even if you don’t plan on investing. If you do, it’s still a 1-3% of your total portfolio type of investment. It’s common to hear about “Bitcoin Millionaires”, people who bought or mined Bitcoins for pennies in 2011 and sold for $3-5000 a coin – but I don’t think we’ll such much of that any more. There are still pump and dumps and the market is WAY more volatile than stocks – but there are also really interesting uses for a lot of this technology and it’s worth researching and possibly investing in – I think we’re still in the stage of early adoption of cryptocurrencies (people are asking about Bitcoin, but there are hundreds of other coins out there that have even more exciting possible uses) – as they say, 1.) Do your own research and 2.) Don’t invest more than you can afford to lose.

    • Mad Money Monster Oct 6, 2017, 3:08 pm

      Well said! I agree with you that it’s definitely worth paying attention to. I, for one, have been ignoring it until recently. But, I think cryptocurrencies are getting too big to keep ignoring. It’s a real thing and it’s here to stay.

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