You’ve probably already heard the terms Bitcoin, blockchain and cryptocurrency.
Even casual observers have noticed the headlines spilling over from the financial section to the front pages of newspapers and blogs.
But still most of us don’t know what the excitement is all about.
Let’s have a closer look.
Bitcoin and cryptocurrency: what you should know
We like our currency the old-fashioned way, folded up in our wallet or accessible in our bank account with an ATM card. The average person loves the comfort zone.
This is why the entrepreneur path is not overly crowded. You have to be willing to go against the grain of comfort. Which brings me to the experience of Erik Finman.
A native of Idaho, Finman was only 12 years old in May 2011 when his older brother Scott introduced him to bitcoin. At the time one coin was worth about $12. Scott sent Erik 0.2 bitcoins so he could use the currency.
Later when his grandmother gave him $1000 for his birthday, Erik decided to also invest that in bitcoin.
Now who does that you’re probably thinking.
But today at 18, Erik is a millionaire owning about 408 bitcoins valued at over $3000 each. He decided to drop out of high school and says “instead of writing papers, he’s writing emails.”
So let’s get a better understanding of what is being called “the 21st century currency.”
Bitcoin was created by Satoshi Nakamoto, who published the invention on 31 October 2008 to a cryptography mailing list. He shared a research paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
We actually don’t know if this was his real name since Nakamoto never stepped forward into the public light. But what we do know is that his sense of timing was perfect.
In 2008 the world economy was going through a death spiral. It was the most dangerous financial position since the Great Depression of the 1930’s. Public trust in the financial system was on a serious nosedive.
The world’s biggest insurance company, AIG with about $1 trillion in assets lost $100 billion.
Lehman Brothers, the investment bank, filed for the largest bankruptcy in American history. And Merrill Lynch was being forced into an acquisition by Bank of America.
Between 2008-2010 more than 170,000 small businesses closed.
Millions of people were laid off from work. And home-ownership tanked as sub-prime mortgage payments ballooned and borrowers were unable to make their payments.
It was in this environment that Satoshi proposed an alternative “digital currency” named Bitcoin.
He wrote “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Cryotographers study techniques for “secret writing” and are commonly referred to as code-breakers. Their psychological makeup is different than marketers, financiers or social workers. They want to study, process, test and then re-test. This was the perfect group to receive the paper from the anonymous Nakamoto.
In July 2010 Bitcoin was introduced as an alternative to cash and the initial value was about $.08 per coin. Volatility is definitely a hallmark of this new currency. In December 2011 a Bitcoin was $2.00. And by August 2017 Bitcoin was trading comfortably at $3400.
What makes Bitcoin different from regular currencies?
One thing is cryptography which is used to monitor and control the creation and transfer of the currency between different parties.
There is no central authority or banks. Managing transactions and the issuing of Bitcoins is carried out collectively by the network.
And since the code is open source and the design is public, everyone can participate. Bitcoin uses peer-to-peer technology to operate.
For the first time two parties can come together online and exchange value without a third party intermediary. No banks, no credit card processors, no government officials.
Of course this has sparked concern as some governments are worried about the potential to use the currency for contraband activities and tax avoidance.
If it sounds like the days of the Wild Wild West where miners were prospecting for gold in the hills — you’re not far off. Except that in cryptocurrency the “miners” are solving complex math puzzles in order to earn Bitcoins. This is how the “coins” are produced. Currently, a winner is rewarded with 25 Bitcoins roughly every 10 minutes.
Total circulation will be 21,000,000 coins. They will be distributed to network nodes when they make blocks. Sometime after the year 2110, there will be 21 million Bitcoins in existence. This finite and specific number helps control inflation and overproduction.
This is in contrast to central control where the production of currency can be manipulated to influence value and impact global markets.
Another unique aspect of Bitcoin and digital currencies is the ledger of past transactions that is maintained by the community. This digital ledger is called a blockchain. It serves to confirm to the rest of the network each transaction that has taken place. And since not one entity ever has all of the data, the authentication is secure.
It is because of these elements that electronic money is revolutionizing the financial services industry.
Millions of people across the globe are being empowered to authenticate and transact immediately and without costly intermediaries.
Banking fees are virtually eliminated.
And digital money also makes exchange rates obsolete. Whether in Asia, Africa, Europe, America or the Caribbean, you trade using the same Bitcoins.
Although Bitcoin is the first cryptocurrency, there are others. On August 1 the currency split and now you have Bitcoin Cash (BCH). It is supported by a faction of the original group.
There are also hundreds of other cryptocurrencies being traded on the exchanges including Litecoin, Ethereum and Ripple. Additional platforms like CCBM are in the pre-launch phase and providing early investment opportunities and incentives for joining.
To get started using Bitcoin, you will need an e-wallet. This is where you store your Bitcoins since there is no physical currency. You can sign up by using a reputable service provider you can find on the internet. Coinbase and Blockchain are a couple of the oldest and most reliable.
Once you have your e-wallet is set, Bitcoins can be transferred to and from anywhere with the internet access just like e-mail. In addition, you can exchange with people from your mobile phone using various apps. Bitcoin ATMs are also available and can also be used to add and withdraw from your e-wallet.
A word of caution. You will need to protect your e-wallet vigilantly since there is no government backing and security. This means if your password is compromised and your Bitcoins are stolen you will have little recourse.
And yet the upside of bitcoins and cryptocurrencies are outweighing the downside for many people including Bill Gates and Richard Branson.
Harvard academic and Bitcoin investor Dennis Porto told Business Inside UK he believes that, given a few years the Bitcoin price could reach $100,000 per coin in February 2021.
He believes this would happen if the growth of Bitcoin follows Moore’s Law, one of the so-called “golden rules of digital technology.”
According to Porto, rapidly growing technologies have a doubling time, meaning that their effectiveness doubles within a consistent, repeatable time-frame.
Traditionally, Moore’s law has been applied to computing technology, but Porto says that the Bitcoin price has thus far followed the trend by more or less doubling every eight months throughout its history.
Where do you go from here?
There is a variety of methods that can help you obtain Bitcoins and other cryptocurrencies. After you have your e-wallet, you can consider these options:
- You can purchase bitcoins from various sellers
- Receive it from business transactions (bitcoin accepted here)
- Doing simple tasks and work to gain free bitcoins (bitcoin payment)
- You can carry out bitcoin mining (cloud based or buy equipment)
- You can be awarded bitcoins for different contributions from the crypto-community.
With the usage of Bitcoins, you will be able to earn extra income and you will have an additional way to receive and make virtual payments. My advice is don’t think get rich quick. Bitcoin can be a part of your long-term strategy by letting your investment grow.
And do your research. Most of the news regarding Bitcoin is being disseminated by online media. The industry is changing daily so you will want to stay plugged in to the sources that are bringing the latest happenings from around the world.
Let me know your thoughts on Bitcoin. I’d love to hear your feedback in the comments.