Bitcoin is growing up – fast. As recently as two years ago, many considered the digital currency to be a fluke, Monopoly money for computer super-nerds and a way for criminals to anonymously do business online. And it’s still both of those – but it’s also a whole lot more. On Friday, billionaire entrepreneur Sir Richard Branson announced that his commercial space flight business, Virgin Galactic, would accept Bitcoin as payment for a seat. And earlier this week, a coalition of pro-Bitcoin organizations launched Bitcoin Black Friday, a “one-day extravaganza” that aims to allow Bitcoin users to do all their holiday shopping online using only Bitcoin.
That’s just the tip of the Bitcoin iceberg. With the digital currency quickly making its way into the mainstream, here’s everything you need to know about Bitcoin right now.
Bitcoin is really complicated, so just ignore that part
Unless dorking out is your thing, just ignore the massively complicated technical underpinnings of Bitcoin. You don’t need to understand the details of how it works.
We don’t know who really created Bitcoin, and may never find out.
The important thing to know about Bitcoin is that, unlike all offline currencies, no central bank controls it. In fact, nobody controls it – Bitcoin is entirely decentralized, digital, and dictated by an open-source algorithm that set the currency in motion back in 2009.
Right now, there are just over 11 million Bitcoins in circulation. The Bitcoin algorithm will stop creating new Bitcoins eventually, meaning there will only ever be about 21 million Bitcoins in existence.
We don’t know who really created Bitcoin, and may never find out. It’s a major mystery waiting to be solved – and it may never be. If you know who it was, give me a call.
Bitcoin is extremely volatile – for better and worse
At the beginning of this year, you could purchase a single Bitcoin for $13. That number has since jumped to over $900 in recent weeks. And, at the time of this writing, it sits at about $769 – for a single Bitcoin.
History shows that that number will likely rise and fall dramatically over time. Right now, the price is really high, so it’s probably not a good time to invest in your first batch of Bitcoins. Wait a little while, and you could buy a Bitcoin for a fraction of what it is today – and then wait till the price jumps back up, cash out, and go buy an apartment.
In addition to Bitcoin’s rapidly fluctuating price, there’s always the possibility that your Bitcoin could get stolen by hackers. So there’s that.
Yes, people are getting rich off of Bitcoin
Some fortunate forward thinking individuals bought into Bitcoin early, when it was just a couple of bucks for a Bitcoin, and have since become multi-millionaires. According to the Bitcoin Rich List, the wealthiest Bitcoin user (or users) owns more than 111,111 Bitcoins, which are worth a total of $85,442,223.35, at the time of this writing. Even the 100th wealthiest Bitcoin user has nearly $7 million worth of Bitcoin.
As mentioned above, the volatile nature of Bitcoin at the moment means those fortunes could double or be cut in half overnight. So if you don’t have money to burn or a stomach of steel, avoid the Bitcoin big leagues.
How to get a Bitcoin
There are plenty of tutorials out there for this, so I’m not going to go into detail here. But the basic steps are:
- Set up a Bitcoin “wallet,” which is where you’ll keep your Bitcoin. Think of your wallet as a Dropbox account. But instead of housing boring TPS reports, you have digital money. Blockchain and Coinbase are popular, trusted wallet options.
- Next, you need to buy some Bitcoin. There are a bunch of Bitcoin exchanges that you can use to buy Bitcoin with U.S. dollars (or other national currencies). Pick one of these.
- Now you can either hoard your Bitcoin and wait for the price to jump, or you can spend them. New vendors and other institutions are accepting Bitcoin payments every day. You can find most of them here.
All that said, Bitcoin’s usefulness is still extremely limited, so don’t feel like you’re missing out on something if you choose to avoid Bitcoin right now. The only good reasons to get into Bitcoin at the moment are because you want to invest in them as a high-risk way to make a fortune, or simply because you’re curious about this newfangled thing. That’s not to say Bitcoin doesn’t have major potential – it absolutely does – but it’s still in its early days, so avoiding it for now is probably the prudent thing to do.
How to spend your Bitcoin
When you set up your Bitcoin wallet, you will be given a unique address – kind of like an email address, but much more cryptic looking – from which you can send and receive Bitcoin. Other Bitcoin users have their own address as well. Using your wallet, you can send specific Bitcoin amounts (even tiny fractions of a Bitcoin) from your address to another address.
You might be surprised to learn that the U.S. government sees a lot of potential in Bitcoin.
If you’re using Bitcoin to buy stuff, you’ll often deal with a third-party service, like Bitpay, which will process the Bitcoin transaction and transfer cash to vendors in their local currency. For you, it’ll work almost exactly the same as paying with a credit or debit card; just put in your wallet address, the item’s amount, and hit “pay.” Easy.
It’s also possible to send Bitcoin directly to other Bitcoin users, or vice versa. If this sounds confusing, fear not: Most Bitcoin wallet services and programs will walk you through the process. And doing it yourself will make a lot more sense than anything I could say here.
Bitcoin is mostly anonymous – but not entirely
Bitcoin has long been touted as the perfect digital replacement to cash because it’s anonymous – you can buy stuff without your credit card company or bank knowing every purchase you make. Its anonymous nature is why illegal operations like the Silk Road drug bazaar rely on it. But it’s not completely anonymous, especially if you don’t know what you’re doing. So if you do get some Bitcoin, try to avoid using them to do anything illegal, m’kay?
The U.S. government is surprisingly cool with Bitcoin
Now, I know what you’re thinking: Bitcoin can, and has, been used to sell and buy all types of nasty stuff, from drugs to guns to pornography to assassinations. How can the U.S. government allow it to operate? Good question. But you might be surprised to learn that the U.S. government sees a lot of potential in Bitcoin.
Earlier this month, outgoing Federal Reserve Chairman Ben Bernanke (who, incidentally, is the number one target on a Bitcoin-funded hit list), told Congress that, while there are potential problems with Bitcoin, he believes the currency “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.” Other government officials echoed this positive sentiment during a Senate hearing early this week.
All of this means that getting into the Bitcoin game is safer than ever, knowing that Uncle Sam likely won’t swoop in and take off with your purse.
Have other questions about Bitcoin? Let me know down below, and I’ll find you an answer.