Bitcoin, the world’s first decentralised cryptocurrency, has fluctuated dramatically in both value and reputation since its release in 2009 by the elusive Satoshi Nakamoto. However, the one way in which it has remained consistent is in its power to divide opinion. Bill Gates has called it a “technological tour de force”, yet the CEO of J.P. Morgan, Jamie Dimon, claims that Bitcoin is “a fraud”.
It is hardly surprising that most of us would be more than a little wary about buying into the digital currency.
Bitcoins cannot fail to pique the interest – entirely contained within the digital world and with no physical manifestation, they effectively automate the role of third-party institutions (banks and governments) in transactions. This means not only an elimination of the fees attached to governing bank transaction, but that the currency “doesn’t care about borders” and thus is unaffected by currency exchange rates. Transfers from anywhere, to anywhere, are quick, cheap and anonymous, and all are recorded on a public ledger rather than by a single institution. According to its developers, Bitcoin “puts the control back in the hands of everybody”, and the wider social implications of bringing people from all corners of the world into the global financial system could be huge.
Bitcoins also have finite availability; a cap has been set of 21 million by 2040. They therefore hold an intrinsic value that recommends them to many as a form of investment – even if their usefulness in paying for commodities is still somewhat limited.
Despite this attractive description, not to mention the fact that that last month Bitcoin reached a record value of over $6,100, the situation is hardly black and white. Just one of the concerns is its association with the purchase and market of illegal substances, whilst its well-publicised unpredictability means that, according to Fadi Ghandour (CEO of major Middle-East tech investment firm Wamda Capital), the financial industry itself still has much to learn about such a new form of money. Berkshire Hathaway’s Warren Buffet is another sceptic, stating that bitcoin cannot in fact be valued, as “it’s not a value-producing asset”.
The stakes are unquestionably high, and the choice to invest in Bitcoin is undoubtedly a complex and personal one.
However, whilst the decision itself cannot be simplified, the methods by which one goes about making that decision can be.
Few are prepared to splash out on the technology (and electricity bill) required to ‘mine’ Bitcoins, therefore buying them is by far the more consumer-friendly option. Thanks to the development of various websites and apps to guide transactions, the process is rapidly increasing in speed and simplicity.
Step 1: Set up a Bitcoin wallet. This is essentially a form of digital bank account, which allows the user to receive, store and send bitcoins, using a selection of private keys. Bitcoin wallets come in four main forms: online, software, hardware, and physical paper wallets containing Bitcoin private keys. Like your real wallet, keeping your Bitcoin wallet as secure as possible is non-negotiable.
Step 2: Find a Bitcoin exchange broker. Put simply, brokers act a little like a Bureau de Change. They are the ones that actively handle your money: you fund your account with your own currency, and use the accumulated balance to order Bitcoin. The most popular UK sites are Bittylicious, Coinfloor, and Coincorner, and most will require rigorous identity checks to set up an account.
Step 3: Buy Bitcoins. Bitcoins are limitlessly divisible, so whilst, at the time of writing, one bitcoin is worth over £5000, you can spend £100 to purchase the value of 0.02 bitcoins.
When it comes to selling Bitcoin to people you know, the process is relatively simple. This can be done directly in person, by simply scanning a QR code on someone else’s phone and accepting cash in hand.
Cashing out on a wider scale is a little more complex, but nevertheless very manageable, and you can usually use the same exchange sites through which one buys Bitcoins to reverse the process. The three main options when selling bitcoins online are direct trade, exchange trade, and peer-to-peer trading marketplaces.
Direct trade requires the most personal involvement, whilst in exchange trade, brokers act as intermediaries that hold each individual’s funds (at some cost), and those looking to buy Bitcoins place a ‘sell order’. The final option brings together two groups: those who wish to use Bitcoin on sites where it is yet to be accepted, and those who want to obtain Bitcoins directly via credit or debit card to directly buy Bitcoin (and are willing to pay a higher fee).
There you have it in (fairly) simple terms, gentlemen.
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