Bitcoin has been touted as the official currency of drug dealers, a giant Ponzi scheme, and the next generation of money. How one piece of technology can be viewed with so many conflicting opinions is almost unbelievable. But what is it really? Why should you care about it? It’s not just something to mention in passing at the water cooler. It really is underpinned by one of the most game-changing pieces of technology of the millennial generation. First there was the Internet; now there is the Blockchain.
One could go on for hours about how Bitcoin works and why it’s completely ingenious. If you find it interesting, I encourage you to do some more research. The first step is to read the official whitepaper. A lot of it may not make sense, but there’s plenty of commentary out there that explains things in layman’s terms. Most of the developers are active on Reddit and will answer well-thought out questions directly. If there’s one thing you should take away from Bitcoin though, it’s that it has created an internet of value. What this means is that Bitcoin allows for efficient transfer of monetary instruments as the internet has allowed the efficient transfer of data and communications. As Jeremy Allaire, Co-Founder and CEO of the Money 2.0 company Circle, says, Bitcoin is more of a digital asset than it is a currency. This doesn’t mean you can’t spend Bitcoin like a currency though. In fact, you can buy just about anything with Bitcoin, from groceries to gold coins.
Many people have a genuine interest in Bitcoin but have no idea where to start with it. The best part of Bitcoin is that it allows you to decide how to handle your money. You can keep it in an insured, centralized business that’s created a user-friendly interface to help you spend and manage your money, you can have it stored directly on your phone or computer, or you can buy a specialized hardware wallet—basically a digital safe—and keep that digital safe locked up in a real safe. It’s all about how convenient or secure you want your money to be. The best step for a beginner is to opt for the first option by using a company like Coinbase to not only acquire bitcoins but also to store them in an FDIC insured account. (Note: the link to Coinbase is a referral link that will net both me and you $10 once you get your first $100 in bitcoins).
Once you have an account on Coinbase or Circle, they’ll ask you some questions that should seem very familiar if you’ve ever opened up a bank account before. You’ll be able to link your legacy bank account and/or debit card to the site, allowing you to exchange dollars for bitcoins. However, this isn’t necessary if you just want to use their site as a wallet and transfer bitcoins you or a friend hold onto Coinbase. The whole experience is very similar to that of Paypal except with a little more functionality and the lack of a line of credit.
Once your account is set up, you can send the bitcoins to another user with either their email address or Bitcoin address. If you live in one of the supported countries and states, you can use the Coinbase Exchange which should be very familiar to those who’ve done any day trading in the past. Or, if you’re just in this for the investment or to try out Bitcoin for yourself, you can simply leave your money on the site and when the time comes spend it somewhere or exchange it back to dollars.
A lot of merchants are integrating a “Pay with Coinbase” button into their platform which allows you to directly spend your bitcoins without having to copy and paste a Bitcoin address and type out the exact amount to transfer. One great example of this, which I can’t recommend highly enough, is Purse. With this service, you can buy anything that Amazon sells, instantly for 5% off their list price. If you’re comfortable with waiting a little longer, say a day to a week, you can set your own discount and allow someone else to purchase your order for you. With the second option, you can save anywhere from 10-50% off your order depending on how long you’re willing to wait for it. I usually opt for 25%, and my orders are fulfilled within a week 9 times out of 10.
Purse recently launched a feature that allows you to sell your own products on their site just like you would on Ebay. The key difference is that, unlike Ebay, there are no listing fees, and instead of the 10% cut that Ebay takes when your item sells, Purse only takes 1%. If you’re a merchant and not just someone who’s cleaning out their closet, Purse makes things easy for you too with inventory control features and promotional tools. If you want to join Purse, please use this referral link, as we will both receive 0.01 BTC ($4.20 at the time of writing) when you spend $50 on the platform.
Back to Bitcoin. You might ask why we need an internet of value. The answer to this question could be very complicated, but put simply, we need it because it’s more efficient and it will integrate into our increasingly digital economy far better than the old fiat we’re currently using. Bitcoin was created with the digital world in mind whereas fiat currency like the U.S. Dollar was created before the internet even existed and has been patched up to work as best as it can there. Some of the things one can do with Bitcoin that can’t be done with old money are:
- Holding money securely in your brain simply by memorizing a list of words.
- Transferring legal documents securely and without the need for a notary public.
- Settling financial trades within minutes instead of within days—all without the need for a large, centralized institution.
- Tipping a content creator a few cents or even fractions of a cent for the helpful video or comment they posted.
- Paying for something online without exposing vulnerable credit card or bank account details to malicious parties who’d seek to steal your identity.
All of these things can be achieved efficiently with Bitcoin, and they’re only the beginning of what’s to come. Bitcoin has only been taken seriously by a large community for a few years now. Imagine what can be built on top of it in the next decade. My personal investment strategy is to hold an amount I’m comfortable with for at least five to ten years. That may seem like a long time, but compared to a 401(k) or IRA it’s actually pretty short. Of course, it’s possible that Bitcoin is replaced by something else and that it’s value declines, but that appears increasingly unlikely due to its strong network effect and the fact that it’s backed by the most powerful computer to ever exist. The potential upside in price is nearly limitless while at worst you might lose anywhere from a few dollars to a few hundred depending on what you initially put in. One thing is for sure though, blockchain technology is not going away anytime soon. Some of the biggest banks are investigating how to incorporate it into their legacy systems. Plus, huge, international monetary bodies like the IMF are exploring its future role in our global economy (PDF link). When the internet was first released into the public eye, most underestimated how dramatically it would reshape our world. The same is true for Bitcoin. It’s incredibly exciting to think about the possibilities that are available to us now and how different our world will be in a decade’s time.
Disclaimer: The author of this article has an investment in Bitcoin as well as other cryptocurrencies. Any investment decisions should be independently researched, and Millennial Investor cannot guarantee whether or not profits or losses will occur. Bitcoin, compared to traditional investments, can be very volatile at times. This means you might gain or lose ~20% on your investment within a day if you sell and realize those changes in value.