Bitcoin is starting to get very popular these days, but still the majority of people know nothing about it. It is considered as one of the best investments you could have made, because of its’ massive price jump over the last year.
So what is Bitcoin?
It’s a new experimental P2P digital currency.
It is designed to be an alternative to the collapsing fiat currencies issued by the central banks around the world.
Using bitcoins (BTC) you can make instant payments to anyone around the world using P2P technology without any central authority.
I won’t go in details about the mechanics of Bitcoin. If you want to learn more about them go to the official site bitcoin.org.
How can a currency exist without a central bank to create it and regulate it?
For many people the idea of peer-to-peer currency seems really hard to understand. There is the assumption that it’s a some sort of monopoly money or Farmville money. It’s not real, because it’s not the dollar, the euro, the rubble or any other government issued currency.
What people don’t understand is that a currency is nothing but a medium of exchange. It is useful as long as someone accepts it to sell you goods.
Other mediums of exchange like gift cards and coupons are not regulated central banks too, but particular stores are going to sell you real goods in exchange for them.
So there is no real reason for a currency like Bitcoin not to be legit as long as vendors accept it and they will accept it if they see value in it.
Key features and benefits of Bitcoin:
- Money without Borders – accepted anywhere anytime
- No regulators and government to steal it and manipulate it
- Transfers without banks – it’s P2P
- Cheap transactions – fees vary from fraction of the percent to zero
- Better privacy and security
- No frozen accounts or blocked payments
- Hedge against the inflation of fiat currencies
- No risks of fraud payments for merchants
- Scarcity – there are never going to be more than 21 million bitcoins in existence
Who is using Bitcoin?
Hundreds of thousands of people are now using Bitcoin around the world and that number is growing. The number of merchants who are accepting bitcoins is also growing. Among the businesses that now accept Bitcoin for payments are big sites like WordPress, Mega, Namecheap and other. There are also bitcoin gambling sites.
How to store bitcoins?
You can store them on most hardware devices. Computers, laptops, phones, flash drives, you name it. Make sure you keep your wallet.dat file. It contains your bitcoins balance. If you lose it due some damage or mistake, you will lose your bitcoins and you can’t get them back. It’s like you have burned a pile of cash, it’s gone.
Bitcoins as an investment
Bitcoin outperformed all major financial investments in the last year. The price for 1 BTC in USD has grown about 10 times. It way outperformed the stock market and the bonds market. And because of the lack of trust in the fiat currencies like the US dollar and the unlimited money printing, Bitcoin seems like a very good investment to store and gain value.
Possible Bitcoin deflation?
Because of its’ scarcity and the devaluation of the other currencies we may see a huge investment demand for bitcoins. This may end up in a situation where many businesses will accept them but the people won’t use them to make purchases, instead they will hold on to them because their price in USD or EUR is supposed to go up. Basically the demand won’t meet the supply. Who knows, we may see 1 BTC exchange for 1,000,000 USD one day.
Is Bitcoin a ponzi scheme?
There are people who say that Bitcoin is a ponzi scheme, on theory mainly because it benefits the early comers more. I would agree that the Bitcoin mining have been a lot easier 2 years ago than it is now. But I can’t call it a ponzi scheme. It just how it is, early adopters have been smarter and better informed than the mass that is coming after them. As long as you can use it and make transactions and exchange it for other currencies, everyone can benefit. The US dollar and the other fiat currencies are bigger ponzi schemes than Bitcoin.
Bitcoin is not a sure investment!
There are not 100% sure investment, Bitcoin is not an exception. Before you jump on it, make sure you know what you are going and you understand the risks. It’s an experimental currency that the big banks don’t like. Also have in mind that the price of Bitcoin in other currencies is highly volatile and it’s going to remain that. It’s not a get rich quick scheme.
What I advice about Bitcoin is to get educated about it before you embrace it or ignore it. We at Bitter Bananas support it.
Sites That Link to this Post
- Bitcoin Bubble? Or a Good Investment? | Bitter Bananas | April 17, 2013
- Six Degrees | Bitcoins: what’s all the fuss about? | December 16, 2013