What Are BitCoins and Should I Invest in BitCoins

Definition:
A Bitcoin is a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

What Is BitCoin

Bitcoin is a decentralized digital currency that is transferred person to person.  The Symbol for Bitcoin looks like a B with hashes through it.

BitCoin is a Crypto-currency

Crypto currencies have been around since the 1980s.  Prior to BitCoin had a problem called “double spend”, but BitCoin solves this problem through the use of a distributed P2P network.

The first bitcoin was first issued in 2009, but no one really knows who started it.  There will only ever be 21 million bitcoins ever.  Bitcoin is divisible down to the 8th decimal place where as the US DOllar is divisible down to a penny, or 1/100.

Bitcoins are difficult and expensive to hack.  Even to hack it for 10 minutes would cost you a hundred million dollars.

Why Is BitCoin Important?

Out of the 7 billion people that live on the planet, over 1/2 of them don’t have access to traditional banking services.  BitCoin makes it easy for anyone without government permission to have access to virtual banking.

Since the 2008 financial crisis, FIAT currencies like the US dollar may be headed to a major devaluation.  Bitcoin handles this problem by pre-determining the number of BitCoins that will be released making it deflationary.

Cross-currency purchases become easy and inexpensive with the use of Bitcoin.

What is Money?

Money is basically any means for exchanging goods and services.

There are four properties that define what money is:

  1. It needs to be divisible (oz of gold, .10 cents)
  2. It needs to be durable – stand the test of time
  3. Needs to be fungible – interchangable – each unit is equal to anotherunit
  4. Needs to be verifiable and ensure it is not counterfit

Bitcoin meets all of these.

How Does BitCoin have Value

  • Bitcoins are limited and scarse – 21 million bitcoins ever.
  • Bitcoins are decentralized – a P2P network, and it can be anonymous
  • Bitcoins are transparent as the code and technology can be looked at – making it trusted
  • Bitcoins are easy to buy and sell
  • Bitcoins have very low transaction fees
  • Bitcoins are irreversible

Bitcoins are not backed by anything tangible – just like FIAT currency.  It is worth what people are willing to pay for it.

Why People like BitCoins

  1. Lack of government control and manipulation
  2. Trust in the Bitcoin Protocol
  3. Anonymity

How Does BitCoin Actually Work?

If someone gives you bitcoins, they are stored in a public ledger.  Every transaction is recorded in the ledger.

  • Coins are stored in “wallets”
  • You can store your coins in paper wallets (write down codes)
  • Wallets can be hosted online

With BitCoins there are two parts to your account.

  1. Your Public Key – your bitcoin key is made up of 27-34 characters.
  2. Your Private Key – similar to a password, but it is thekey you need to access your coins in the public ledger.

How Do I get BitCoins?

  1. You can buy bitcoins from a person or an exchange
  2. Barter – trade services for bitcoin
  3. Mine for BitCoins – getting the bitcoins as they are released.

How Do I Profit From BitCoin?

  1. Mining – getting the bitcoin for free and then selling them for a profit
  2. Invest or Trade in BitCoins – the buy and hold mentality is pretty risky
  3. As a merchant – offer discounts for people who want to pay in BitCoins

 BitCoin Speculation

Recently, BitCoin has increased in value by over 10,000%.  However, there have been many crashes of over 50%, however prices did recover after the crashes.

Tips on BitCoin Speculation

  • Don’t chase the market
  • Will the mass majority of people in the world use BitCoin?