If you’ve been paying attention to the news lately, you’ve most certainly heard of the term Bitcoin being used. This is because the price of Bitcoin has skyrocketed. It began the year worth $800 for a single Bitcoin. As of today, the price is over $15,000!
So what the heck is Bitcoin? Is Bitcoin a scam? Or is it a legitimate way to make money? In this post, I will walk you through the history of Bitcoin and answer some common questions. I’ll also show you how you can buy and win Bitcoin if you so desire.
What Is Bitcoin?
The History of Bitcoin
Bitcoin began back in 2008 by a developer as a peer-to-peer electronic payment system. Instead of using paper currency like all nations do, Bitcoin is 100% digital currency.
The allure of Bitcoins are that they are free from central authority. In the United States, we have the Federal Reserve overseeing the money supply. With Bitcoins, you don’t have this authority. It was pre-programmed that the total number of Bitcoins will never exceed 21,000,000.
Every year, fewer and fewer Bitcoins are released to the public. In roughly 2040, no more Bitcoins will be produced.
The entire process of creating Bitcoins is very technical and I will not be going into the details in this post.
What can you do with Bitcoins? You can use them to buy things. Back when the digital currency first started, you were hard pressed to find places that accepted Bitcoin. But today, more and more places accept Bitcoin.
And of course, if you are making a deal with another person, say at a yard sale for example, you could pay for the item in Bitcoin assuming the seller is interested in accepting them.
How To Get Bitcoins
There are various ways to get your hands on Bitcoins. For starters, you can go online to a Bitcoin exchange. This works just like a currency exchange does. You hand over money and will receive virtual Bitcoins in your online wallet. There are other ways to get Bitcoins as well:
- Accept them for goods and services
- Find someone to trade with in a private transaction
- Mine for Bitcoins (This involves solving mathematical equations and earning Bitcoins as a reward. These equations are fairly complex and as a result, “pools” have developed where multiple people join forces to solve the equations and then split the Bitcoins. While this sounds interesting, know that for the average person, this is not an ideal solution.)
What Can I Use Bitcoins For?
You can use a Bitcoin for just about anything, assuming the buyer accepts them. There have been stories of people buying illegal drugs with Bitcoins. Because of this, many people think that Bitcoin is illegal when in fact it is perfectly legal to own Bitcoin. If you are interested in making money illegally, check out this post.
Of course, you could choose to buy nothing with Bitcoin and instead treat it like any other investment.
Should You Join In?
Before you jump into the Bitcoin craze, understand that the prices are extremely volatile. At one point in 2011 they were trading at $1 BTC to $260 USD because of the issues in Cyprus and then dropped in value by almost half.
Then there is this year. In September, the price hit $8,000. Four months later and it is at $15,000. And before you think the price only goes up, know that in one hour of trading the price dropped $2,000.
I do give credit to the creator of Bitcoin as it clearly states on the site that Bitcoins should not be used for savings. Because of the volatility of the currency and the unregulated nature of it, you don’t want to have a large percent of your savings in Bitcoin.
Finally, as far as this being a scam, I do not buy into that idea. You can buy and sell the digital currency and you can purchase goods and pay for services with it. However, since it is unregulated, you just have to take more safety measures than you would with currency that is recognized by a government.
How To Get Started With Bitcoin
If you decide you want to buy Bitcoin, you need to join an exchange. This is completely free to join, but you do have to pay in order to buy Bitcoin. The best exchange I have found is Coinbase.
They offer a free digital wallet to store your purchased Bitcoins in. They also offer you access to other digital currencies as well, such as Ethereum. Yes, there are other digital currencies out there too. To open your free account with Coinbase, click here.
Of course in addition to buying Bitcoin, you can win the digital currency. There are many games and apps that allow you to win fractions of Bitcoin.
Two that I use are Digital Artists Online and the app Free Bitcoin. Now, before you think you are going to become a millionaire going this route, you need to push the brakes. It is going to take a lot of work to earn just a half of one Bitcoin going this route. So don’t think this is a get rich quick scheme.
If you understand this and still want to play games to earn some fractions of a Bitcoin, then by all means, sign up.
Here is a little more detail about both.
Every hour you enter a code to earn free bitcoin. It is a raffle and most times you are earning around 0.00000015 Bitcoin. If you get lucky however, you can earn more. But as you can see, it is going to take you time to really make money by using the raffle. Luckily, there are other options with this app. There is also a lottery you can enter into to win more Bitcoin. Alternatively, you can play a hi-lo game.
This is where the real money is at. As you play this game, you can really make some Bitcoin. But again, you aren’t getting rich overnight. You can join this free app by clicking here.
Digital Artists Online
This site uses various sites for you to earn free Bitcoin. Depending on the site, you either earn Satoshi every 5 or 10 minutes. This Satoshi is turned into Bitcoin when you redeem it to your wallet. As of now, roughly 20,000 Satoshi equals about $3 USD. The good news here is that you can earn Satoshi quickly. When I am online, I have a separate tab open to Digital Artists and flip over and get my Satoshi when the timer runs out. I regularly earn between 60 and 100. And I do this for each of their 5 sites.
Doing this allows me to earn 20,000 weekly. If I put more effort into this, I could make a lot more. Here is the link to join Digital Artists Online for free.
The Biggest Issue With Bitcoin
The biggest issue with Bitcoin is the fact that there is a finite supply of them. If we reflect back on basic economics of supply and demand, we know that as supply decreases, demand increases. This will apply exactly to Bitcoin.
As the years pass and less and less Bitcoins are produced (and eventually production stops), demand for them will increase. Because of the increase in value, many people will choose to hold onto the coins instead of spending them. This will lead to people hoarding the coins which will drive the price up even higher.
Then at one point, because the value is so high, no one new will enter into the system to buy Bitcoins. The holders won’t spend them because of their value. The result is deflation or a crash of the entire system.
Of course, this is all in theory. But it could play out. It’s just that no one knows what is going to happen in the future.
For example, many people think Bitcoin is a scam and the bubble is about to burst. But think about this. Less than 10 million people are involved with Bitcoin at the moment. There are 300 billion people on the planet. So while the price looks high now, it could be a fraction of the value in 10 years assuming more people begin to use it a viable currency.
Bitcoins are an interesting concept in the electronic payment system world. Up until now, no real alternative currency has taken root, simply because of the barriers of entry and the regulations. I foresee Bitcoin as a pioneer, but an eventual failure.
This is not to take anything away from the system. I think that it is ingenious and lays the groundwork for version 2.0 of virtual currency to expand upon Bitcoins successes and correct its failures. It will certainly be interesting to watch how it unfolds.
Hi, my name is Jon and I run Penny Thots. I blog about many personal finance topics, but my specialties lie in investing, paying off debt, and achieving your financial goals. You can learn more about me on the Author Page.